The market in Liverpool city centre continued to push ahead towards the end of the third quarter after a somewhat quieter summer period, but the quality of new developments continues to fall short of buyers’ expectations, writes Alan Bevan.
We saw prices increase by an average of 1.05% over the three months to 30 September 2015 and an annual increase of 5.32%. This compares with the Halifax price index showing a quarterly increase of 2.0% and annually 8.6%. Nationwide reported more disappointing figures with a quarterly change of just 0.5% and an annual increase of 3.8%. Perhaps most surprising was the quarterly fall in the North West market of 0.5%.
We highlighted in our last report the levelling of the playing field between homeowners and investors created by the Chancellor’s first true blue budget in 20 years. The changes included a more onerous tax charge on landlords through the restriction on tax relief to basic rate and the proposed changes to the wear-and-tear allowances. These are expected to have an impact on the buy-to-let market. Although the full effect of these changes will not be felt until 2020 we would expect to see some initial reaction from investors either concerned or believing that it will not affect them or the market. The initial response from both new and existing investors is that they appear generally unconcerned as to the proposals and are continuing to invest in the city in increasing numbers/amounts.
We continue to see a huge and growing amount of interest in the Liverpool city centre market from outsiders, whether they are individual buyers or large institutional funds. We have discussed PRS at length and the announcement that Vista agreed to purchase from Promenade Estates the Baltic Village scheme for £50m highlights the growing attractiveness of the city as a place to invest long-term money in residential projects.
Interestingly, however one or two commentators are beginning to suggest that we are developing too much residential and that we are at risk of the market overheating. Whist we do believe there are certain types of schemes, locations and products that may well begin to suffer from oversupply, should all of the pipeline get built, there still remains an area of the market that continues to be massively undersupplied which we are calling “proper residential stock”.
So what do we mean by “proper residential schemes” and why in our opinion is it so undersupplied? We’ve discussed at length the huge increase in interest in Liverpool as a place to live and lack of new-build development geared towards this type of buyer. Whilst the other type of PRS (Private Rented Sector) will offer a great range of rental stock for this growing rental demand, who is going to build those apartments that are being sought by new buyers? The other issue that will exaggerate this imbalance is the fact that the majority of what was built in Liverpool city centre, as with many Northern cities, during the last boom of 2002-2007 was not of particularly great quality and was often designed for the buy-to-let investor speculator.
With a limited supply of good quality residential schemes and a huge and growing demand for “proper residential stock”, you can see why we are particularly excited about this sector of the market. The main issue we face is who is going to tap into this market? Initially it will be niche developers who have the funding to develop smaller schemes but hopefully this will be supplemented with larger developers realising the market is undersupplied. Finance is a big issue as investment style developments can be pre-funded in various ways where an owner-occupier development requires more of the developer’s equity. Maybe the banks will begin to realise there is money to be made in this area of the market although by the time this happens many of us would suggest that the top of the market is near.
- Alan Bevan is managing director of Liverpool estate agent City Residential
- Download the City Residential Q3 2015 report