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UK Property Prices Rebound

Everyone wants to know whether the UK property market has overheated, reached its peak and gone into decline.

Surprisingly for many, the answer is perhaps not, as there is evidence that demand will increase soon - meaning higher property prices. If the current market cycle is quite small, it is likely that we are now near the bottom of the cycle now and, if this prediction proves correct, we will achieve the ‘soft landing’ everyone is hoping for.

Brad Bamfield, Founder & CEO of JointEquity, says:

“The UK Government has recently announced 2 significant changes, which will have huge impact on the structure of the property industry, pushing property prices upwards. They are:-

 Property Investment Trusts (PIFs); and
 Self Invested Private Pensions (Sipps)

Both initiatives will benefit the economy and promote greater saving, but are likely to create greater competition for residential property, leading to higher prices. Both PIFs & Sipps will be introduced in 2005/6.

Higher prices will have a particularly adverse effect on first-time buyers, and a positive effect on Buy-to-Let owners.”

Investors will move back into the property market in significant numbers, once they get to grips with, and understand the implications of the tax relief available to them from Sipps.

So what hope for the first-time buyer? Interestingly, there is still some good news for them in all this gloom.

It will take some time for PIFs & Sipps to have an affect the market, so any property bought now should see significant growth over the next 2-3 years. Also, property prices are more attractive to buyers at present, as we are reaching the low-point in the market cycle,

Many first-time buyers are priced out of the market as they don’t have a large deposit available and can’t get a big enough mortgage on their salary. JointEquity has been set up to help these people step onto the property ladder and take advantage of the capital growth and other benefits that can be gained from home ownership.

Through the JointEquity Scheme, a first-time buyer part-rents & part-buys the home of their choice with the help of an Investor Partner. The Investor-Partner gains a secure, low-cost, property investment, free of the complications of buy-to-let.

Would-be property investors should be aware that there is significant pressure building not to allow unfettered access to the residential market for Sipps.

Andrew George, MP for St. Ives, is one of many MPs who are worried over the effects of these changes:-

"I am encouraging the Government to restrict the opportunity to use SIPPs only on residential property which is then made available on the local private rented market under a long-term lease or acceptable tenancy or to be used for portfolios of shared-equity accommodation for locals. That restriction might help relieve some local problems. But without it, the housing problems of locals [and First Time Buyers] will be made significantly worse.”

The JointEquity Scheme offers a lower risk, more ethical, investment that should be acceptable to Sipps regulations. Joint Equity offers a viable alternative to Buy-to-Let and provides a equitable route into the market for increasing numbers of occupiers and investors.

The implication of these two changes is that there will be more upward than downward pressure on property prices throughout the UK. Therefore, if we are right, those people who buy now will be seeing significant benefits 18 months or so.


N.B. This press release is based on an article which can be viewed in full at www.jointequity.co.uk. If you would like any additional information please contact us.


Additional information

What are Property Investment Trusts (PIFs)?

PIFs are the property equivalent of Unit Trusts for share ownership, which
will allow investors to participate in the property market at lower risk and lower entry values.

It is possible that individuals will be able to invest as little as £500 with lower risk. However, lower risk means lower value and the investors are only expected to receive returns at 1 or 2% above standard investment rates.

This is not a bad return but it is not terribly exciting - especially when house prices are rising at between 15 and 20%.

So, why the difference between returns? PIFs will likely have a spread of investments across the industrial, commercial and housing sectors. The US REIT (Real Estate Investment Trusts) model, on which PIFs are based has typical spreads of:-
 Retail 20%
 Residential 21%
 Industrial/office 32%
 Speciality 2%
 Healthcare 4%
 Self storage 4%
 Diversified 9%
 Mortgage-backed 2%
 Lodging/resort 6%

[For graphic please contact press@jointequity.co.uk ]

The 3 primary sectors will all be on different growth cycles and the structure is designed to flatten any coincidental peaks. So one sector might be in high growth while another is very low and they will balance out.

It is thought possible that the market capitalisation of individual PIFs will rise to about £250M, and whilst there is a ready supply of commercial and retail properties there are no large residential portfolio owners who can switch their properties into a PIF.

The Chancellor has appreciated this problem and seems likely to allow PIFs to buy land and develop their own properties.

David Alexander, at Edinburgh-based property managers D J Alexander, said: "Is this an alternative to owner-occupation, to enable young people to rent as opposed to buy? Or is [the chancellor] trying to boost pension funds by encouraging more investment in property?"

Alexander warns that even if PIFs work and do attract more money into the rented sector, which is already suffering from an over-supply, it will do nothing to dampen house price inflation which makes it even more difficult for First Time Buyers to buy rather than rent.


What are Self Invested Private Pensions (Sipps)?

Sipps were launched in 1989 by Nigel Lawson, then Chancellor of the Exchequer, and are particularly suited to the self-employed.

They offer investors the option of making their own investment decisions. Moreover, they also offer a wider investment scope than traditional pension funds.

Sipps allow the pension holder to choose from:
 Stocks and shares, including investment trust and open-ended investment company (OEIC) shares on any Inland Revenue-recognised stock exchange,
 Futures and options contracts,
 Unit trusts,
 Insurance company funds,
 Traded endowments.
 Deposit accounts,
 Commercial property, including that of your own company

It is this latter facet of a Sipp that attracts many investors.

October 2004