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22 June 2012

London to lead recovery in house prices with 47% growth by 2016

London is to lead the UK house price recovery with 47% accumulated growth by the end of 2016 according to BNP Paribas Real Estate.

BNP Paribas Real Estate UK has published its latest Housing & The Economy report - its quarterly housing forecasts put together with Professor Patrick Minford, a former economics adviser to Margaret Thatcher.

Growth last year in London was 2.71% but in 2012 it will reach 5% and is set to more than double in 2013 to 11%, the adviser predicts. This equates to an annualised figure of 8% in the next five years and means that in the decade from 2007 to 2016, growth in London will reach 52%.  The UK picture is also positive with 34% cumulative growth expected by 2016, an annualised growth rate of 6%, with growth this year forecast at 2.11% following last year’s marginal fall of -0.21%. Only London, the South East and the Eastern regions saw marginal growth last year with the rest of the country experiencing house price falls.

London has led the way in residential house prices for the last five years but with only an annualised figure of 0.7%. Over the next five, growth in London will be much grander and so will its outperformance of the rest of the UK. Most regions will see a marked increase in growth in 2013 except the East Midlands which sees a more balanced growth year-on-year from this year onwards.

Tim Cann, head of residential at BNPPRE, comments: ‘The housing market has drifted sideways for the last year but demand for housing, and houses in particular, whether to rent or buy has continued to rise despite recession. Signs of increase in mortgage provisions and the return of first time buyers (even from a very low base) will help demand. Furthermore, the ongoing housing supply shortage will drive rental growth in core city locations, underpinning house prices and preventing decline and an increase in employment and recovery in the economic backdrop will help prices from 2013 onwards.’

"Our report builds in the weak performance expected by the Eurozone which will continue to have implications for the UK housing market. As such, although it will be much better than in previous years, growth will remain modest year-on-year for the foreseeable future – a trend that is long-term once the ‘froth’ of the 2005-2006 bubble has been removed, meaning that the adjustment following these years is complete and this long-run trend can continue.’

The South East (outside London) is the second biggest winner in terms of house price growth with 41% predicted by the end of 2016, an annualised figure of 7%. In 2012, this figure will be 3.2%.

The East Midlands follows with 38% predicted by 2016, an annualised figure of 6.5%, and growth this year of 6.4%, a performance different to that of other regions thanks to its concentration of attractive, low density family housing locations.

The South West and Eastern regions follow with growth predicted of 36% and 35% respectively, although the South West will only see growth of 1.81% this year, and a bigger jump in 2013 whereas East Anglia will see 3.72% of growth by the end of 2012.

Yorkshire and Wales are the only two regions in the UK to have negative growth forecast for 2012 with -0.39% predicted for Yorkshire but a much larger -5.5% expected in Wales.  By 2016 Yorkshire will see cumulative growth of 23% and Wales 15% but these are still lowest of all the UK regions.

The report also predicted accumulated growth of 29% by 2016 in the North East with 2.54% expected this year; 29% for the West Midlands by 2016 with 1.77% this year and 25% in the North West by 2016 with 0.30% expected this year.

Debbie Taylor, head of land and new homes at BNPPRE, says: ‘Overall we still predict institutional investors to become more and more acquisitional in the residential sector and this can only help to improve development levels and drive growth in both the numbers of units coming forwards and in sale prices. We expect there to be an increase in development agreements and joint ventures between financial investors and housebuilders going forwards.’

In the new homes market the number of planning permissions show that the number of units is increasing while the number of schemes is reducing. The report cites that this means schemes are getting bigger and that volume housebuilders are back in play while the smaller developers may find themselves being squeezed out of the market by the lack of available finance.  The north remains constricted by greater costs on remediation and infrastructure against what is achievable in sales revenue.

Cann concludes: ‘The north-south divide is increasing and will continue to do so. While stronger house price growth over the next few years will spill out into the regions, it will very much be led by London and the Southern regions.’

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