General elections do not usually have much sway on the property market in the UK but this year’s election could have a greater impact, particularly on mainstream real estate, than past elections because of where we are in the housing cycle, it is claimed.
Because the property market is already in a state of low turnover and is only partially functioning due to the global financial crisis, it is perhaps more vulnerable to the slightest political changes, according to Lucian Cook, residential research director at real estate adviser, Savills.
‘We have a partially functioning market where recent price growth has been driven by cash and equity rich buyers chasing low stock levels. With continued constraints on mortgage lending, the market is heavily dependent on sentiment amongst a certain class of buyer, particularly against the background of continued economic uncertainty,’ he explained.
‘We expect to see these low transaction levels continue up to the election and through the immediate aftermath as political uncertainty makes buyers and sellers pause for thought. In itself this could cause volatility in price movements, with possibly more short term downward pressure on prices in the mainstream market than we have seen in the past twelve months,’ he added.
He believes that a hung parliament could lead buyers and sellers to remain cautious, which would suppress turnover levels and limit the prospects of price growth for longer.
‘Without doubt, and probably regardless of which party wins, an outright majority would be the best outcome for the housing market in 2010, and possibly through to 2012, the year we have pencilled in as the start of a more sustained housing market recovery,’ said Cook.
In the prime property markets the biggest risk will be to transaction levels which, unlike the mainstream market, have recovered relatively strongly in 2009 and the first part of 2010. ‘Because of the weakness of sterling and the predominance of overseas buyers we expect pricing in the prime central London to be less exposed than the mainstream, while the more restrained recovery in prime regional values in 2009 insulates those markets from significant election-related price falls,’ Cook said.
The cushion of higher levels of equity means that prime markets will be less sensitive to these factors, though the uncertainties surrounding taxation and future bonus payments will remain a concern for the foreseeable future.
‘An uncertain market requires realism as an inflated guide price could result in a property sticking. For all but the most exceptional properties, sellers expecting to achieve a real price premium based on a perceived demand and supply imbalance could be disappointed. Buyers may have an opportunity to bid in a less fiercely competitive market but should not expect a rush of stock to the market,’ he added.
Looking further ahead, it will be the extent to which the winning party is able to address the key issues facing the property market and house building industry that will determine the health of the mainstream residential market, according to Cook.
The major issues governing the ability of the housing market to become fully functioning during the next parliament include: a general economic recovery, in particular future interest rate movements and the extent of public spending cuts; finance industry regulation, in particular the availability of mortgage finance; incentives to help expand institutional investment in the private rental sector; levels of house building and the inherent undersupply of stock; stamp duty and other barriers to entry.