Medium term outlook for UK residential prices is strong but prices will fall nest year, analysts warn

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Residential property prices in the UK are set to fall in 2010 by up to 7% before recovering in 2012, according to a new report.

In 2009 London and the South East led a strong recovery for house prices during the past six to eight months and the average growth rate could end the year at 5%, says the report from Jones Lang La Salle.

Analysts warn though that the rate of growth is already slowing. Unemployment is expected to have a major impact on the real estate market in 2010 as well as the rise in VAT in January, the general election, the diminishing impact of the quantitative easing programme and further government fiscal tightening which will all weaken the demand for housing in the next 12 to 18 months while also forcing more homes into the marketplace.

However, it concludes that the medium term outlook is good. Although 2010 and 2011 are expected to be difficult years for the real estate market after that prices are predicted to rise strongly at 6% per year.

‘Whilst there is evidence to suggest the UK economy is in recovery mode there remain question marks about the depth and sustainability as well as how the public finances can be repaired, quite possibly under a new government,’ said James Thomas, head of residential development and investment at Jones Lang La Salle.

‘The recent pick up in house prices is based on fragile economic fundamentals such as a weak pound, which has driven overseas buyer demand, and a boost from the stock market recovery, both of which are unlikely to be as supportive during 2010,’ he explained.

‘It is very probable the present recovery will stall next year with prices falling by 7% as the rate in the increase of new buyers to the market eases, while the low number of properties on the market bottoms out and starts to rise again,’ added Thomas.

Analysts say that the overhang from 2010 will make 2011 a difficult year. ‘But thereafter we can expect the potential for strong house price growth of 6% per annum as an improving economy forces increased housing demand to come face to face with restricted supply,’ concluded Thomas.

 

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