City Res: market going ‘nowhere in a hurry’

Alan Bevan, managing director of City Residential, gives his lowdown on the residential market in Liverpool city centre for the third quarter of 2011.

Another quarter has gone by and the sales market continues in the doldrums with low levels of transactions and prices continuing to stagnate and drift lower. Again we must reiterate that with such low transaction levels it is very difficult to read anything into our figures (average sale price -0.7% for the quarter) or that posted by Nationwide or Lloyds/Halifax (-0.8%). It can be well summarised by saying that the market is going nowhere in a hurry.

We highlighted last quarter that we are seeing buyers attracted to quality product in good locations and how this was helping established locations such as South Ferry Quay as well as some of the better new developments in the city such as One Park West and Mann Island.

Sales at both of these schemes appear to be holding up well with Grosvenor announcing £1m of sales in September and Countryside/Neptune reporting continued strong interest in their Mann Island development. Expect this to continue over the next 12 months as the market returns to rewarding those developers/vendors who are selling apartments that people actually want to live in.

Every quarter we try search for a glimmer of light and hope in the market. This quarter it is in finance that we have seen some positive movement. Yes, finance is still hard to come by especially if you have anything other than a strong credit history. Loan-to-value lending ratios are also a concern with lenders still looking to take minimal risk in the market especially where new lending is concerned. A huge positive however is the extremely low level of fixed rates that are now on offer from some of the building societies that are unlikely to ever be repeated in our lifetime. Three-year fixed rates at 2.99% and five-year fixed rates at 3.99% are at a level which improves affordability tremendously compared with the last 20-30 years.

We are continuing to see a fair level of repossessions across the city, which are holding prices back for non distressed sellers. Interestingly we are also seeing some repossessions sales that are having to go to cash buyers rather than financed buyers due to problems with the block management such as non-payment of service charges. Whilst these are not affecting the better blocks it is for some of the poorer schemes where there has been a high level of repossessions and many of the apartments in them have become un-mortgage-able.

Residential lettings

Madness….panic…gazumping…..15 tenants chasing one apartment…multiple viewings!!! Yes, it's that time of year again where we welcome back 50,000 students into the city and the market goes ballistic. After the summer lull and what seemed like a higher than normal number of move-outs in May and June we were awaiting the August/September rush with a little concern. Could it be as busy as last year when we literally ran out of stock? Are we able to increase rents to encourage our landlords that there is growth in the rental market?

Well by the end of September we were knocked over with the level of demand as the students and young professionals fought with each other to secure an apartment in the city centre. Whilst we had seen an unbelievable demand last year, 2011 will be remembered for the year the city ran out of stock. It is difficult to gauge how many more apartments we and the other agents could have let but we have conservatively estimated around 200-300 would have been let if they would have been available. The huge level of demand has been echoed by the accommodation offices at the two main universities who were also scrambling around for more suitable accommodation during September.

Whilst there is no doubt the majority of this extra demand has been caused by an even larger influx of students before the tuition fees rise, there has also been an increase in non student tenants tempted by the attractions of the city centre. We have mentioned before and will reiterate that the improvements made in the city centre have attracted more people to live here. Saying that even, we have been amazed at the levels we have seen over the last four to six weeks.

Although there has been a surge in demand it has not translated into substantial rent rises across the city. Most landlords are happy to be realistic with rents and are looking to increase gradually at the start of each letting, especially if they have the apartment becoming vacant during the period June to September. We have seen some scenarios however where apartments close to the universities are achieving 10% more than we could have rented the same apartment for in May. As a landlord it is ideal if you can time the exit of an existing tenant around August to allow you to take advantage of the huge demand in September.

Although the economy continues to suffer serious headwinds we see low levels of rent arrears across our portfolio. Indeed rent arrears are virtually unchanged in comparison to this time last year, despite a worsening in the economic and employment picture. We have long trumpeted the advantage of student tenants, especially 2nd and 3rd year, where some landlords have been doubtful. With the majority of these student tenants paying six months upfront the rent arrear levels for this sector is lower than the overall average.

• Download the City Residential quarterly reports here