Sativa Finance

Commercial Property Finance

Sativa Finance Ltd

14 Curzon Street

London

W1J 5HN

 

T: 020 3008 4882

sativafinance_lrWhite small Terms & Conditions

Sativa Finance Blog

Property Finance Newsletter

 

Sativa Finance update the blog regularly with comment and opinion on issues relevant to the property finance market.

By finchrob, Jun 28 2016 03:47PM

It’s been the topic of conversation since the very early hours of June 25th 2016 - the Brexit vote has shocked the financial markets and both political and economic analysts have been attempting to interpret the results as best they can. Before launching into our opinions the key point is we don’t know the full implications of our decision to leave the EU and it will be several years before some even come to light given the complexities of our relationship with Europe.


Despite the hammering banks and housebuilders have taken in the stock market, we don’t see the property finance market changing dramatically once things settle down. The property market is very dependent on third party funding and the range of funders currently in the UK market is as plentiful as we seen. The credit crunch 8 years ago sucked most of the liquidity out the market and we can’t see that happening now. Firstly, there is a £250bn provision from the Bank of England to guard against liquidity issues that may come out of the Brexit vote. Secondly the diversity in sources of funding for property professionals is such that there is isn’t the same reliance on the high street banks as there once was.

The property market itself in the 6 months before the referendum had been fairly static. After a few years of strong growth in many locations the residential market had cooled off and in some parts of central London prices had even fallen. The fundamentals behind this were overseas investors being more cautious and the domestic market struggling with affordability under increasingly onerous mortgage requirements. Overall there are still buyers and renters out there for residential property and tenant demand for commercial space in most areas. The key factor in the health of the UK’s property market is demand has consistently outstripped supply and this hasn’t changed overnight.


Some are even expecting a strong property market over the next year or two. A weakened pound and subdued property values could see international investors return, particularly to London. The volatility of the stock market and expectation of continued low interest rates means bonds and shares are that appealing for the institutional investor. So both direct and indirect property investments could be attractive as property lending returns are relatively strong and yields from direct investment are significantly above typical fixed income yields.


The main negative factor in our opinion is simply the uncertainty this will bring and those sitting on their hands while they see how things play out. How long this lasts are difficult to tell but we expect people to come to terms with the fact that leaving the EU is a long journey and life must go on in the meantime. One longer term effect could be that the ratings downgrades make bank debt more expensive for some borrowers but this is unlikely to be a significant impact as long as the economy steadies itself fairly soon.


So in summary we think the collective interests of those involved will make the transition as smooth as possible and the economic impact in the long term fairly minimal. Practicalities, like comparable trade deals and replacing EU subsidies to sectors like farming with central government subsidies, should be deliverable. However, in an increasingly globalised world the aim should be to reduce international restrictions on trade and labour movement, encourage multiculturalism and for countries to open themselves up to the world. So whilst the vote may not hurt us in our pockets as much as the Remain camp have suggested, we do see it as a narrowing of our horizons.



By sativafin, Apr 14 2016 05:48PM

The London Mayoral Race is now less than a month away and one of the key campaign grounds is housing in the Capital. The campaigning strategy appears to boil down to saying you can build a lot more houses than the other candidate but how feasible are their numbers and how will it impact on the market?


At conferences about development and construction that we’ve attended over the years the capacity of the construction industry seems like the biggest problem facing the new London mayor. Both candidates are proposing to significantly increase volumes of housing stock and Zac Goldsmith has recent been quoted as saying he wants to double the amount of houses London builds to around 50,000 a year. When asked how he’ll do that his reply was:


“We need to free up publicly owned brownfield land. The second thing is to grow the transport network. There’s plenty of land that could be developed but isn’t. So for me transport is as much a ‘getting around’ issue as it is a housing issue. The two go hand in hand. I’m going to protect the TfL investment budget and find new ways of funding transport growth.”


Ignoring the reams of red tape involved with ‘freeing up publicly owned brownfield land’ and the time lag in delivering infrastructure he doesn’t address the main issue which is the capacity of the construction industry. As shown in the DCLG chart at the bottom of this post, new house building completions have steadily increased over the last few years and peaked at 24,610 for the year to Q1 2015 (more even than the peak of the housing bubble in 2006 / 07). However, Mr Goldsmith will have to more than double this figure consistently to hit his targets.


The recent increase in new house building has put significant strain on availability of building materials and skilled labour with costs of both increasing significantly. On the skills front the construction consultancy CAST states that every year 3 times as many workers leave the industry as join taking much needed skills as well as man power with them. Whilst international immigration has helped stem the flow the industry needs to do better and recruiting and keeping skilled workers. The issues relating to construction capacity are complex but it isn’t a tap that can be turned on and off at a moment’s notice.


In terms of finance for these projects, the market is currently fairly well served but most of the funders for private developers are relatively small scale banks and funds so ramping up funding for development projects could be difficult both in terms of man power and balance sheets. The larger housebuilders / plc developers are currently, on the whole, experiencing a cash flow squeeze from slowing sales and rising project costs. These larger developers are typically funded by high street banks who themselves have new banking regulations to deal with that may impact on liquidity – they’re also still relatively cautious as many are still writing off old property deals, so they may not feel inclined to throw lots more debt finance at property companies with deteriorating balance sheets.


Therefore, we feel the areas being address by the mayoral candidates, such as land availability and infrastructure works like Crossrail, don’t tell the full story. The annual delivery of over 50,000 houses in London, more than twice the recent peak, is dependent on a lot of factors aligning and we don’t feel the construction industry or finance markets are currently ready for the challenge.





RSS Feed

Web feed