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Mayfair Capital James Thornton

Comment: UK property recovery confirmed

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James Thornton, Fund Director at Mayfair Capital Investment Management comments on the results of the IPD’s latest survey of the UK property market.

The IPD this week released the results of its Annual Index for 2009. At a positive return of +3.4% this confirmed the recovery indicated by the smaller sample measured by the IPD Monthly Index.

The positive return seen in 2009 looked unlikely at the mid-year point when yields rose by 80 basis points and came back by 100 basis points in H2.
Whilst yields have rebounded from an oversold position, what is surprising is that yields have corrected at a time when rents continue to fall, albeit the rate of decline is slowing. Notwithstanding this, the risk premium remains at 400 points, meaning that there is scope for further capital appreciation in 2010. It is evident that investors view property as an attractive source of income relative to gilts where significant pricing risks remain.
A wide range of investors have sought to take advantage of the market in 2009 but with an absence of sellers, volumes remain low with around £25 billion transacted in 2009. This is around the same level as 2008 but only half the volume seen in 2005 to 2007.
A feature of the market has been the absence of banks selling to date. With an estimated GBP 35bn to refinance in 2010 and 13% of the loans estimated to be in breach, we expect an increase in bank selling in 2010.

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