Property Crumble

Rob Perrins Managing Director of Berkeley Group

Whilst the property market indicies tell us that property prices have risen slightly over the past couple of months, the latest results from Berkeley Group PLC paint a different picture.

Rob Perrins, Managing Director, said

The value of sales are well ahead of 2008 and approximately 40% below historic averages over the past six years.”

and

Transactions fell from 968 to 914 units and average sales prices have fallen from £399,000 to £299,00

and

we have seen “positive signs from equity rich customers, particularly from overseas who have the additional benefit of the depreciation of Sterling

So, what are we to make of this?

Firstly, to keep their business running, Berkeley have headed south on the average cost of property stock. That means, their average property price is now £299,000 and not £399,000. That is a huge change.

Hence, we can infer that the higher priced property- in the range £300,000 to £700,000 perhaps, is not selling at all.

This mid sector of the market is the hole in the current UK property market and a similar experience is occurring in other property markets worldwide too.

Why?

Well, the clue is given in Mr Perrins report. He stated that the market is being maintained by cash buyers – and many from abroad who are using Sterling weakness to buy (note they are a London based developer).

Therefore, properties which require large mortgages are not selling and most of these are in the bracket above £300,000.

However, at the very top of the market in the £1m+ homes sector, London property is still selling because buyers at this level have the money to buy in cash.

It would also seem that a large number of equity rich UK buyers are turning up to buy flats for rent or flats for sons and daughters.

Of course, at this lower level, property can also be financed – if a sufficient deposit is paid – using first time buyer mortgages.

From what I have seen on the ground, the sale of the first time buyer homes is also providing enough cash deposit to allow the current owners to move up one step on the housing ladder – to buy the ’second time buyer’ home.

However, this is where the property market then stops.

So, if you want to know where the activity in your local property market is, look at what people are buying as first time buyer and second time buyer homes or investments.

Then look at the next step up from this group and see what is happening? The answer is nothing – they are not selling and nor are they discounting. Essentially the market is in more or less complete stop.

Apart from key areas of London, look in the £3 – 400,000 plus price bracket and count the houses available and sales being made – it is very small indeed.

The question then is this. What will happen when Sterling recovers and foreign money stops coming to the UK property market? And when will the mid market for property recover?

The first event will simply slow the market but may be accompanied by better finance in a year or two and so be more of less noticeable.

The second event can only occur when finance returns and that is unlikely to happen soon if at all.

So, if you are looking at the third step on the ladder, then you can discount and offer significantly below the asking price – because you do not face competition.