Monday, 8 July 2013

How much longer for the property bubble?

The news that Ping An, a Chinese Insurance, has bought the Lloyds of London building is interesting in that it may prove a turning point of sorts.

The London commercial and residential markets for property have been going at a fair clip this past 2 years, although not without their failures along the way. Minerva plc, now defunct, built a lovely huge office space right opposite Cannon Street which is has managed not to let for 3 years now - quite some feat for an investment of that size in such a prime area. In the property market, as much as the prices in London continue to rocket upwards, they were not enough to save the bad buys of projects such as Chelsea Barracks which has been put on hold.


Nonetheless, with low interest rates and good property rights in the UK, a bonanza has generally been underway. How long can it last though. The obvious point is that the rise in interest rates will kill-off the huge speculative buys. But if new, wealthy players like Ping An are still entering the market then it will support prices for some time yet. This deal for Lime Street is quite a good one too, the rent should mean a yield of over 5% at this price which is a good return on your money for long-term commercial letting, the German fund selling originally wanted more like £300 million, so a 10% discount was negotiated. So the property boom looks set to last a while yet and with the flow of work to support industries and boost to potential construction work, this will be a big factor in powering forward the economy for the next year or two at least.

11 comments:

Demetrius said...

If you plug too many heavy use devices into your system and push it too hard then sooner or later the fuses will blow. The later it does then the worse it will be. Who knows when? But there will be a "when".

Graeme said...

Propery bubble or is that London property bubble ... however with rates unlikely to rise my guess is around another 2-3 years. (bar an external shock, oil, major war etc. etc.)

corncrake said...

@ Graeme
I think you have read the chicken entrails correctly "London property bubble".
Well you could throw in the whole of the SE as well!

Sarf Lahnduuna said...

The Battersea Power Station development (Malaysian/Chinese) has been receiving a lot of publicity this week. Prices for a small flat appear to be in the 800,000 quid range. Not cheap for your average Battersean.

Mark Wadsworth said...

Doom mongers and free market liberals such as me have been calling the top for about six years now, but amazingly enough, HM Govt manages to keep the bubble inflated with ever more desperate measures and so far they are winning.

Blue Eyes said...

CU, have I missed a turning point in commercial property? Until recently it was said that there was a glut even in(/especially?) Central London.

Residential housing in London may be very expensive but there is a tangible shortage. Forecasts of another million of population growth, a stupid planning system and stupider activists/politicians mean that supply is unlikely to outgrow demand. A friend who has been deferring buying her first home is now fretting because prices in her current area have apparently gone up 6% in six months!

IF the UK economy really is starting a slow recovery might we see property demand grow even more?

I wouldn't ever make a prediction but the proof is in the eating. I bought my shoddy little flat at the "top" of the market and I reckon it's now worth quite a bit more than I paid for it. CU, do you wish you had sold to rent when you said you were going to?!?!

andrew said...

I have no idea about London, but in Bristol I do not detect that air of mass middle-class smugness that tells me the housing market is about to start to fall.

On commercial property, I think we have already commented on the rise of the internet on retail property.

Wandering around a large publishing company that is in transition to being a training/education company, I was quite surprised how most people of all ages there were v. happy to have a meeting NOT face to face.

Personally, it seems like you want a trophy office in the centre and a random hutch near where people actually live.

This is what my employer is doing.

If I am right, most of the city need not be physically in the city.
(a bit like the NYSE is actually in NJ).

Sell the 'non-core' city. Buy the prime bits and short term rentals.

CityUnslicker said...

BE, I did sell to rent, but only fo a year ans then bought at the bottom in 2009. Natch. Off plan with 30% discount.

Agree itch everyone else, London bubble.

assurance auto said...

this is true "" The London commercial and residential markets for property have been going at a fair clip this past 2 years, although not without their failures along the way. Minerva plc, now defunct, built a lovely huge office space right opposite Cannon Street which is has managed not to let for 3 years now - quite some feat for an investment of that size in such a prime area. In the property market, as much as the prices in London continue to rocket upwards, they were not enough to save the bad buys of projects such as Chelsea Barracks which has been put on hold.
""

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JeremyOlm said...

My estate agents and I are of the same mind that it's not just the property markets that are going to be affected by the Chinese. They are truly coming up with power and buying ability and we're going to see a lot more Chinese businesses and companies slowly eating into industries all over the world. Best be prepared!