Game of Loans: Is the property market getting colder?
Being involved in funding a lot of development projects around the country means that we experience many different parts of the market, from affordable starter homes to high-end luxury housing.
We see different types of building styles and specifications and they all have their place in the market.
One of the main criticisms of the property market has been the influx of foreign money, particularly into the capital, which has priced many locals out and forced them to look further afield for a home. For many years during and just after the recession, London has been perceived as a ‘safe haven’ for foreign investors looking more towards long-term capital gain rather than yield. Sadiq Khan has recently gone on to express concerns that London could become the ‘money-laundering capital of the world’ and has suggested that Londoners should have first option on new homes rather than being barged out the way by foreign money or cash-rich investors.
However, 2016 has started to signal a change. For the first time since the recession, we at Regentsmead have noticed a slowing down in the market. This rings true particularly for some of our clients that focus on building higher-end properties, who may well have previously targeted foreign investors. But the top end has historically been a slightly more unpredictable facet of the market. Just last year one of our developer clients fell foul of the weak-kneed nature of professional footballers, when the sale of a 6,000 sq ft luxury property fell through at the last minute because of a certain England international player.
We’ve seen projects in prime-residential areas such as Chelsea and Cobham that have really struggled to get punters through the door for viewings, let alone get the offers on the table that they desired when we first lent to them some 12 months ago.
So what’s the reason behind this cooling off? It would be a bit easy if there was a simple explanation that we could magically fix and stop this growing reticence in the top end of the market trickling down. The huge and rather tedious build up to a certain referendum may well have contributed, but ultimately there are a range of longer-term political and economic factors that could play a part. This time next year we may have Donald Trump occupying the White House, Turkey could be a member of the EU and issues with the economies of Greece and China could well rear their heads again.
From a development lender’s point of view it’s almost impossible to estimate where the market will be in 12 months’ time when we initially agree funding for a project, particularly when we have the first signs of a genuine slowdown in place. All the more reason for us to prepare for the worst and hope for the best. I think it’s important to add that even during 2007/08 we supported our clients through thick and thin and didn’t pull any funding. At the end of the day, when we are funding a scheme we are all in it together regardless of the climate, so it’s our duty as a lender to make sure we can get the project over the line.