Is a double dip fall in UK house prices on its way?

LONDON - The London-based research group downplayed recent reports indicating the house-price recovery is fading saying "forecasters projecting a double dip have got it wrong" and have "ignored the housing market fundamentals".

Last week, there were concerns among homeowners amid news that UK House prices dropped for the first time in 15 months in July, causing the annual rate to weaken for the first time in over a year, according to property data company, Hometrack. This followed claims by Nationwide and Halifax, two of the UK's largest mortgage lenders that the robust recovery in house prices is drawing to an end.

Despite this correction the CEBR said prices will increase 4% per cent this year and continue rising until 2014, mainly due to a shortage of homes in the UK and low interest rates.
As always with all news relating to the UK property market, the sensational headlines have been appearing fast with the rational facts slow to follow.

I agree with the CEBR's view that the fundamentals point to an increase in property prices, especially in London, and adds that The majority of our South African clients are astute investors, steered by facts and not by media hype. This has been evident in the surge of new enquiries since January from high net worth South Africans looking for help in acquiring property in London for investment purposes. These investors share our view that a tight supply of new housing and an increase population on this small island will drive UK house prices upwards.

Both domestic and foreign property investors have seen the weaker Pound, lower property prices and interest rates of just 0.5% as a buying opportunity too good to miss and reports now suggest that more than 46% of all purchases in London over the last few months can be contributed to foreign buyers.

Not surprising when you consider that residential rental rates in the UK are now close to levels last seen in early 2008, before the financial crisis and fall in housing prices. The Residential Landlords Association (RLA) says the number of new tenants seeking rental properties increased markedly in June, as more than 18,000 Britons decided to rent a home. This represents a 22% rise in the number of new tenants compared to figures from May and continues a trend which began at the beginning of the year. The number of tenants renting residential properties has now increased by 16% since January, bringing more than 50,000 new tenants into the buy-to-let sector over a period of just six months, yet the number of new residential properties available on the rental market has decreased by 6% since April.

This sharp spike in demand, coupled with relatively low supply of rental properties is the main factor behind the continued rental increases since the start of 2010. Monthly rents increased by 1% in June, crowning five straight months of rental rises. This means the average rent in the UK's private buy-to-let sector has now increased by 3.2% over the past 12 months. This is equivalent to an average of £23 extra income per tenant each month, bringing the average UK rent to £673. As always London rentals continue to rise faster than in other parts of the country as first-time buyers find it difficult to afford a home in the capital. London-area landlords experienced the highest rental increases in the country - close to double the national average. Rents in the capital rose by 1.9%, bringing the average monthly rent to £942.

The property pessimists would have you believe that property in the UK is doomed, but this ignores the fact that housing is not stocks and shares. Owning a home is an emotional desire, a must-have aspiration for most Britons, and the demand for property in Britain remains high. Yes, prices may have fallen slightly, but investors in the UK and abroad will simply see this as another good purchasing opportunity.

*Mike Smuts is managing director of Smuts & Taylor, a South African investment firm based in London.