David Allen, director of investment Atisreal Birmingham, makes his predictions for the investment market.
Many of us had hardly heard the words ‘credit crunch’ until last year and you could probably be forgiven as we had had unbroken GDP growth since 1992.
The boom in the property market in recent years was a result of a large supply of money lent at competitive rates; however, the credit crunch began to cull this towards the second half of 2007 throughout 2008.
Like all of the regional centres the West Midlands hasn’t escaped the effects; the most obvious impact has been on the residential market and we have seen a substantial number of new developments being mothballed until demand returns. The housing market will not recover until confidence returns resulting in turnover.
Demand in the investment market was from debt-backed purchasers for whom the cost of finance and the level of finance have both moved adversely and therefore the pricing has also moved downward. Speculative finance is all but at an end and whilst the short-term view is that property looks good value on an initial yield basis against bond yields there is more pain to come before the expected recovery in 2010 and 2011 and real estate returns may remain negative during 2009. There is massive need for refinancing in that period of 2009 to 2010 and this could prove a big technical hurdle with the wholesale money markets closed off at present.
The public sector is funding some projects and therefore keeping some of the industry professionals busy.
Looking forward to 2009 we should probably expect to continue bumping along the bottom as prices begin to stabilise and look good to private purchasers and overseas investors who may be set to re-enter the market.