Survey confirms collapse in confidence across the property sector
6th November 2008A survey of 187 senior property industry executives carried out by Smith & Williamson, the professional and financial services group, highlights the property sector's lack of confidence for the future.
Smith & Williamson's sixth annual property survey focuses on economic, regulatory and environmental issues.
Highlights include:
- Business confidence in both the residential and commercial property sectors has crashed in the last couple of years (from 86% to 7% and 91% to 18% respectively)
- UK economic performance and raising finance are seen as the most important issues facing the industry
- Environmental issues are not a priority and many respondents were not aware of the available tax reliefs
- Tax remains a significant influence on business decisions
The survey represents the views of property investors, traders and developers, along with chartered surveyors, architects, lawyers and other professionals and service providers in the property industry.
Business confidence crumples
A year after the credit crunch began, Smith & Williamson's property survey confirms the widespread and growing lack of confidence in the sector.
The residential sector is particularly pessimistic with those who are reasonably or very confident, dropping from 86% in 2006, to 48% in 2007 and to just 7% this year.
Confidence in the commercial property sector has also dropped dramatically in the last two years. In 2006, 91% responded that they were reasonably or very confident, in 2007 it was 58% and this year only 18% have said that they are reasonably confident. Not a single respondent said they were ‘very confident' about the outlook for either residential or commercial property this year.
"Market volatility means that it's a very challenging environment in which to undertake projects that can take several years to complete. In our experience some property businesses are sitting on the sidelines holding cash but are not yet willing to move back into the market," explained Nick Cartwright, chair of Smith & Williamson's Property Group.
"Graham Beale of Nationwide has said that house prices might end up falling by as much as 25% from their peak seen in autumn 2007 and Andy Hornby of HBOS has predicted that the credit crunch, which is restricting lending, would last well into 2010. There are no dissenting voices amongst our respondents."
He continued, "The Government has belatedly announced a few measures to assist the UK real estate sector, including raising the stamp duty land tax threshold and buying houses at knockdown prices from builders through the Homes and Communities Agency. The Government's proposals though have been widely criticised for being woefully inadequate."
UK economic performance and raising finance are key issues
Unsurprisingly, our respondents reported that UK economic performance was by far and away the most significant issue facing them. 93% said that it was one of the five (from 15) most important issues facing the property industry, and 60% of those believed it to be the single most important issue.
Just behind UK economic performance, the next biggest issue facing the property world is, according to our survey, the ability to raise finance. In fact over a third (37%) of respondents said their businesses will be constrained in the next 12 months due to lack of finance.
Despite this, the percentage of those looking to raise finance in the next 12 months has actually decreased slightly (from 42% in 2007 to 39% in 2008).
"Interestingly, almost all of this year's respondents who intend to raise finance saw the banks as their prime source. At Smith & Williamson we have seen some bank lenders opening up for business again, but on a very tentative and different basis in terms of gearing, rates and valuations. Banks are understandably uneasy that valuations are now coming in with disclaimers due to market uncertainty, which is indicative of the sensitive nature of the market and the loss of appetite for risk. Until economic conditions and the bank's own balance sheets have improved, many banks cannot lend on property ventures, as frankly they need the cash themselves," said Nick.
Environmental matters
Smith & Williamson's survey highlights that although the Government may be focusing more on environmentally-friendly developments, this is not a priority for the property industry in the current economic climate.
Respondents seem to be aware of the environmental legislation that will reduce their profit margin (shown in blue below) however, there seems to be less understanding of the benefits available (magenta) from enhanced capital allowances, land remediation relief, and SDLT zero relief for carbon zero housing. As Nick explained, "Environmental tax reliefs can result in significant savings and are particularly relevant in the current climate when finance is tight."
Financial and tax issues
Tax continues to have a significant influence on business decisions, and frequently acts as a barrier to property transactions.
A resounding 88% of respondents felt that tax would influence their decision on whether to sell a property or not. Last year the equivalent figure was 93%. "That decline may be a result of weaker market conditions taking tax on profits down the agenda," Nick commented. "The Brown-Darling partnership has complicated property taxation no-end and it remains to be seen whether the pair can come up with any meaningful provisions to assist the ailing UK property market in its hour of need."
"An indication of just how out of step the Treasury is with the realities of the property market is the abolition of empty property rates relief, which has led companies to demolish buildings rather than suffer the tax. This is expected to raise in the order of £1bn per annum from the property sector, which is approximately the amount the Government is proposing to put back in as part of their ‘rescue plan'."
He concluded, "The UK real estate sector along with the rest of the economy is in a downturn. This may or may not have reversed by the time Smith & Williamson's seventh annual property survey results come out next year, but in reality, the most we can probably expect by the autumn of 2009 is the very early sight of the green buds of recovery."
187 people responded to the survey. Respondents included chartered surveyors, property investors, property developers, architects and quantity surveyors.
Percentage of respondents and size of businesses:
More than 250 employees 31%
101-250 employees 12%
51-100 employees 10%
11-50 employees 24%
Less than 10 employees 23%
For further information, contact:
Nick Cartwright is chair of the Property Group at accountants and financial advisory group Smith & Williamson.
Email: nick.cartwright@smith.williamson.co.uk
Press office
Alison Hayman, tel: 020 7131 4138
Kate Harrison, tel: 020 7131 4228
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Note to editors
Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Maidstone, North London, Salisbury, Southampton, and Worcester.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International, a worldwide network of independent accounting firms.
