Westcountry

Guy Weston, property expert at King Sturge, looks at what's in store for the South West property market in 2008.

South West house price growth in the 12 months to Q4 2007 was 7 per cent, roughly in line with the UK average, according to Nationwide. Historically, the South West region has been remarkably close to the UK growth rate.

In 2008, we forecast price growth of 1 per cent for the UK and 2 per cent for the South West. As such we envisage a marginally weaker market than that experienced in 2005. It should be remembered that Capital Economics, who currently forecast an 8 per cent fall in prices in the South West, were forecasting a 2.5 per cent rise in 2007 12 months ago and an 0.5 per cent increase in 2007 in the year prior to that. In Q4 2005, they forecast South West price falls of 5 per cent and 11 per cent, respectively, in 2006 and 2007. This compares to actual figures of 7 per cent in both years!

Transactions will fall by as much as 10 per cent, compared to the 2007 level. This goes a long way in explaining the announced layoffs in estate agencies and share price falls for listed housebuilders. Such companies are heavily dependent upon maintaining transaction volumes to support market values. Pricing is obviously an important element but we believe that the main manifestation of any market weakness in the year ahead will be seen in falls in transaction volumes, rather than sharp price falls.

This presents a problem for developers who may not see as much off-plan purchase activity as in recent quarters. Subsequently, cashflow pressures will increase as purchasers acquire later in the construction process. Stock units may become a more common feature of the market. So far, developers have experienced this in northern provincial cities where high volume schemes are sited in close proximity to each other. We do not see this process becoming as widespread in the South West, where planning is far more constrained. A case study of Salisbury illustrates the relative absence of supply-side risk. In Salisbury, flats only constitute 8 per cent of housing stock, compared to 13 per cent in England.

Guy Weston, King Sturge: "In 2008, we forecast price growth of 1 per cent for the UK and 2 per cent for the South West."

Furthermore, a time series analysis of housing completions in Salisbury shows that there has been little detectable increase in development activity in recent years. Completions have been lower than plan targets for every year shown in Chart 7 and this pattern continues for projected levels to 2011.

Salisbury also has a shortage of smaller-sized (5 rooms or less) properties relative to the South West and England. This produces affordability constraints and underpins demand for apartment stock.

New-build pricing

Nevertheless, pricing pressure is apparent in the new-build market. Scotland continues to be most resilient in pricing terms, according to the HBF survey, as has been apparent for several months. The nation’s use of sales incentives was also below the British average in December. The North West is the weakest of regions shown.

Bristol new-build

The Bristol Residential Letting Company manage 22 out of 104 apartments at the Harbourside 360 building scheme and provide a tenant search service on others. They report that all units they act as agents for were let within three months of completion. Where tenants have vacated, all have been re-let in this phase which was completed in 2006.

The tenant base is fairly diversified with foreigners accounting for circa 25 per cent of the total on the scheme. They are employed by local companies such as Axa and the MOD.

Elsewhere on Harbourside, at the first phase of The Crescent building, 40 per cent of the 30 units so far sold have been to investors. Strong tenant demand has been reported since completion in October 2007. This reflects a market for highly-specified apartment rental stock that is healthily balanced for landlords across the whole of Bristol. One-bedroom new apartment stock in the city centre with parking is notably under-supplied, as is Clifton, generally.

Affordability constraints in the sales market ensure a constant supply of tenants. Subsequently, there has been a notable increase in tenants extending their leases recently.

Rents range from £725 to £875pcm in The Crescent for one bedroom apartments and up to £1,500 for highly specified, waterside, two bedroom apartments.

Prices for one bedroom apartments in The Crescent start from £230,000, two bedroom apartments from £285,000. Many of the homes in the development will have views over the ss Great Britain and The Matthew. Final completion is due in Spring 2009. A managed car parking scheme will operate in The Crescent building and there will also be a car share club.

Newquay new-build

The credit squeeze since last autumn has adversely affected demand for second hand property with the number of enquiries falling in the final quarter of 2007. However the new build market has not been affected to the same degree and the market for new apartments remains strong in prime locations in Newquay. Holiday home purchasers are an important source of demand here. They are less dependent upon mortgage finance than average and are predominately from London and the South East.

New homes continue to see resilient demand off-plan. At Zinc, over 50 per cent of the 52 apartments are now reserved at sales values ranging from £319 to £508 ft2. Another new-build scheme, the 14-apartment 270 Degrees North, Newquay, was completely reserved off-plan. One bedroom units have been reserved at prices ranging from £261 ft2 to £350 ft2. A penthouse apartment recently sold for £611 ft2, reflecting strong demand for high specification stock. Elsewhere in Newquay, the Pearl scheme has not been formally marketed, but only 4 of the 14 units are now available for sale.

New-build schemes are attractive for those purchasing holiday homes as they often have low maintenance costs and are secure relative to second hand accommodation, which are especially important features for those who may not be resident for long periods.