Island Life Magazine Ltd February/March 2012 | Page 18

PROPERTY

Taking the positives from
an 'interesting' year
Richard P Dickson - hose-rhodes-dickson.co.uk
A renowned and well respected
international economist described
last year as 'interesting'. Not an
adjective that would readily spring
to my mind, but perhaps he was
trying to put a positive spin on the
world’s economic situation. More
appropriate words would perhaps
be unpredictable, tough, volatile,
worrying and disappointing.
Despite many predictions of total
financial armageddan at the end of
2010 the FTSE did not collapse and
property values held up quite well.
However, many national housing
indices fundamentally disagree as to
what happened to house prices.
The Nationwide
announced that
prices across the
country increased
by 3%, some
building societies/
banks said there
was a national
downturn as much
as 3.5%, whereas
other indices
showed an increase
of 1.5%.
Relating this to
the Island’s mini
economic climate
is not easy. Slightly
more than 2,000
properties changed
hands in 2011,
and values across the board will have
probably reduced by between 1%
and 2%. In effect, we have a static
marketplace and prices might have
slipped a little on the Island.
The Governor of the Bank of
England does not instill confidence
in any market when he admits “none
of us can really know the scale of
shocks that could come from the
Euro”. No one knows if the Euro
will survive and eminent financial
analysts seem to disagree.
In arriving at my conclusion for
property values in 2012 I have
assumed our politicians can get their
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acts together and that the Eurozone
remains intact and continues to trade
at a reasonable level.
I am also anticipating that because
of these unprecedented international
financial pressures and the low
growth of our own economy, bank
base rate will remain at 0.5% during
2012, which will have the effect of
preserving affordability.
Another factor that will influence
property prices is the availability
of mortgages and what the lending
institutions are looking for on a
loan to value basis. Lower property
prices are an advantage for first time
buyers and purchasers wishing to take

a step up the property ladder, but
only if they are able to find the large
deposits required to secure mortgage
finance. The strength of any recovery
will be determined by the volume of
funds available for purchases.
Sentiment/confidence is an
important factor in determining
property values, and until we
see more optimism I doubt that
transaction numbers will grow
significantly.
The pessimists who try to convince
us property in the UK is doomed do
not take into account the fact that
housing is not stocks and shares.

Unlike our continental cousins, home
ownership is an inherent aspiration
for most Britons and the demand for
property in Britain remains high.
Lastly is the simple market pressure
of supply and demand. Government
development targets and planning
guidelines have, in the past, focused
on quantity rather than quality, with
target led development encouraging
the large scale developers to
concentrate on flats and smaller
properties in order to deliver
maximum volume at minimum cost.
However, this has failed to tackle
the problem of family homes being
in short supply. A report by the
National Housing
and Planning
Advice Unit (the
government’s
independent
housing experts)
stated that an
undersupply of
larger homes
pushes up the cost
of all properties
and exacerbates
inflation problems.
This, combined
with the fact that
owners are simply
not selling because
they feel they are
not getting enough
for their home, is
still very much underpinning value.
I would suggest the property with
a wow factor, from a one-bedroom
flat at £95,000 to a country house at
£1-£5 million will still sell very well.
The whole market this coming year is
likely to remain static or rise a little
by as much as 2% to 3% overall, and
the Island property values will reflect
this trend. Whenever one tries to
predict what will happen to house
prices over a given period of time it
is necessary to try and second guess
so many different factors and, in the
final analysis, the predictions are at
best an educated guess.