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Residential Property Review - August 2023

While demand in the residential sales market has experienced a decline, the market's overall activity remains conspicuously robust.

According to the latest UK Residential Survey conducted by the Royal Institution of Chartered Surveyors (RICS) in July, several negative indicators have emerged, raising concerns within the industry.

National-Level Housing Market Trends

At the national level, the statistical data remains quite sobering. In July, new buyer enquiries recorded a net balance of -45%, a figure that showed little change from the previous month's reading of -46%. This persistent decline has been aptly described in the report as symptomatic of a market steadily losing ground in response to the escalation of mortgage rates.

Moreover, the headline new instructions net balance exhibited a significant decrease, plummeting to -13% in July, a sharp decline from June's -3%. Additionally, agreed sales witnessed a decline, registering a net balance of -44% in July, down notably from the -36% recorded in June.

This particular statistic is especially disheartening as it marks the weakest performance in the agreed sales measure since the early stages of the pandemic. However, there is a glimpse of optimism emanating from separate data released by HMRC, which provides a slightly divergent perspective.

In June, the number of completions in the market experienced an upswing, reaching 94,690. Although this figure remains at 86% of the 2017-2019 average, it represents a noteworthy improvement from the 77% recorded in May. This increase in completions suggests that, despite the challenging conditions, the market retains an inherent resilience, with certain buyers and sellers successfully navigating the evolving landscape.

Simon Rubinsohn, RICS Chief Economist, commented, “The recent uptick in mortgage activity looks likely to be reversed over the coming months if the feedback to the latest RICS Residential Survey is anything to go by.”

Commercial Hotspots for Conversion

New data from Searchland reveals a promising opportunity in England's real estate market, as almost 28,000 sites have the potential for conversion into residential properties. The sheer scale of this potential is striking, with the estimated combined market value of these sites exceeding £1.5 billion.

London, being a hub of economic activity and urban development, accounts for approximately one-third of England's convertible sites. The estimated market value of these London sites alone is an impressive £928 million. This underscores the significant potential for urban regeneration and the creation of much-needed housing within the capital city.

Housing Secretary Michael Gove highlighted the feasibility of such conversions in a speech delivered in July. He emphasised that some commercial hotspots, including shops and restaurants, present particularly favourable prospects for transformation into residential accommodations.

Mitchell Fasanya of Searchland commented, “Disused commercial sites are a cornerstone of the government’s approach to solving the UK’s housing problems […] developers already have the opportunity to turn thousands of commercial properties into residential developments and these sites currently hold significant value in the current market.”

New-Build Price Premium Soars

The price of an average new-build property is now 52% higher than for existing homes, according to research by Sourced Franchise.

Over the course of the past year, there has been a remarkable surge in price premiums associated with new-build properties, marking a substantial increase of 20%. This surge has culminated in an impressive average uplift of 52%, significantly altering the dynamics of the real estate market.

When examining the regional breakdown of these new-build price premiums, it becomes evident that the North East stands as the leader in this trend, boasting the most robust premiums at an impressive 83%. Scotland closely follows with a substantial 72% premium, and the East Midlands, North West, West Midlands, and Wales all exhibit notable increases, ranging from 62% to 66%.

Conversely, London, traditionally recognized for its high property values, bucks this trend by displaying the smallest new-build house price premium in the country, at just 17%.

This discrepancy in premiums between London and the rest of the country highlights a significant shift in property dynamics, reflecting the evolving preferences and priorities of buyers in the wake of changing economic and lifestyle factors.

As the real estate landscape continues to adapt, these disparities in price premiums provide valuable insights into the shifting patterns of property investment across different regions.

All details are correct at the time of writing (21 August 2023)

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

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