Analysts predict widening gap in the UK real estate market in 2011 between best properties and the rest

Gap to widen on UK property values in 2011

Over the next five years the division between the best UK properties and the rest is set to widen, with prime central London house prices expected to rise by 33% compared to a UK average of 12%, according to a new forecast.

Within the mainstream the average will disguise growing divisions, according to Savills. The best, referred to as grade A stock, will outperform the average by 5% over the next five years, while grade C will underperform by the same margin, a difference of 10% between the different types of property in the same location.

In its 2011 house price forecast report it says that the average, mainstream UK property prices will experience a second slip and values are expected to fall by a total of 7.3% between the middle of 2010 and end of 2011. It point out that some of these falls have already occurred, with a fall 3% expected to occur in 2011.

This compares to total falls of just 3.5% expected in prime central London over the same eighteen month period with a decline of just 1.0% for this sector in 2011.

‘Unlike the doomsters, we are not forecasting a deep double dip and there will be tiers of the market, like grade A prime London properties, that may well escape the downturn virtually unscathed,’ said Yolande Barnes, head of residential research at Savills.

She explained that market would vary according to location and quality. ‘These distinctions will make a big difference to longer term performance and we expect markets rich in equity to operate very differently to those historically heavily reliant on mortgage finance,’ she said.

High quality residential property in prime locations will significantly outperform the UK mainstream housing market over the next five years, both in the pace and scale of growth.

‘London is a market driven by a totally different set of factors to the rest of UK housing, not least its position as a global financial centre and appeal as a safe deposit for international investors,’ said Lucian Cook, director of Savills research.

‘It will continue to lead the recovery, financed by overseas wealth inflows and a strong private sector economy, particularly in the financial and business services sectors. In turn, this will have a knock on effect to other parts of the South East which will also be driven by the stronger Southern economies,’ he added.

According to Savills Research, prime central London house prices are forecast to fall by 1% in 2011 and to rise by 33% by the end of 2015, compared to a UK average of 12%.

In the shorter term, the mainstream UK market has, on average, outperformed expectations over 2010, by growing in the first six months of the year, the report also says. However, falling prices have been widely reported in the third and fourth quarters and Savills anticipates that it will end the year down by 0.5%. But Savills believes that the falls next year will be contained to an average of a few percentage points across the UK.

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