Property  

Property market ‘to stay buoyant’

Walter Boettcher, director of research and forecasting at Colliers International, said while the UK economy had an effect on property values, even a modest rate rise would do little to “unhinge” demand.

He said: “In tracking the UK economy and property markets it is clear that much forward-looking attention is shifting to understanding business cycles, inflation expectations, and especially the likely path of interest rates and gilts.”

His comments came as Bank of England governor Mark Carney suggested in his forward guidance last week that interest rate rises could increase to 2 per cent over the next two to three years, as inflation remained just under 2 per cent.

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In a white paper, Will Interest Rates Undermine Property Values?, Mr Boettcher said: “Even a modest rise would do little to unhinge property demand, given scope for further price rises, brought about in part by the current rate of 0.5 per cent.”

The white paper added that a strengthening economy would support occupier markets, lower vacancy rates, encourage rental growth for landlords and boost cash flow, all of which would further increase appetite for property assets.

This, in turn, would see more UK investors turn to property in their portfolios, whether in a packaged fund, buy-to-let or buying directly into commercial property schemes.

Mr Boettcher added: “From a property perspective, interest rates are important, not merely as an indicator of debt costs for asset acquisition, but also as a means of evaluating the pricing of commercial property assets.

“If the 10-year gilt rate is considered the ‘risk-free’ rate, then commercial property yields are often understood as the 10-year gilt with added risk pricing.

“If gilts do not move and the economy strengthens, then surely the required risk will fall, allowing property yields to fall further, with scope for further capital value growth.”

ADVISER VIEW

Jason Witcombe of Evolve Financial Planning in London, said: “I would encourage clients not to make decisions based on short-term movements. It needs to be a long-term decision, rather than trying to predict when will be a good time to invest in property. It’s about deciding whether property is appropriate as a long-term holding.”

Table: What is keeping UK rates low?

- reliance of the recovery on household spending

- exchange rate constraints and international competitiveness

- benign inflation and deflation risks

- control of government debt costs

- the possibility of a mid-cycle economic slowdown

- the availability of alternate macro-prudential tools to target sector bubbles

- the UK general election

Source: Colliers

Adviser View

Jason Witcombe of Evolve Financial Planning in London, said: “As with any investment, I would encourage clients not to make decisions based on short-term movements. It needs to be a long-term decision, rather than trying to time an exit, or predict when was or will be a good time to invest in property. Instead, it’s about deciding whether property is appropriate for a client as a long-term holding.”