PropertyInvesting.net: Property Investment Special Reports

308: UK Property Investing Outlook

PropertyInvesting.net

Now that the Bank of England has stopped printing money, we believe the economy will start to falter to a moderate degree. Lending for property will remain very difficult – with banks showing an intense scrutiny on all applications. Unemployment is likely to drift higher, but this is likely to be focussed on manufacturing area such as the Midlands and North. Add to this the drying up of public sector funds for new projects and a retrenchment in certain areas, and this will also adversely affect the Midlands, Wales, North and Scotland. So – as advised for many years now – best focus property investment in London and southern England for better rental demand and steady property prices.

However, this is just the beginning. Because – if you believe the opinion poles, we will get a Tory majority in an election in early May 2010. The Tories currently led by 11% in early February - they had 40% compared with Labour’s 29%. This is slipped recently to 38% versus 31%. That’s a large margin to close in three months and we expect further bad news for Labour in the next few months with a deterioration in the economy despite record borrowing, printing money, rates at 0.5% and public sector expansion to date. The Tories do not seem to be able to capitalize though – having failed to get more then 40% of the vote consistently.  

For the North and Midlands – there is worse to come if the Tories get into power. Firstly, they will cut public spending, cut public sector employment, the pound will likely recover, this will put further pressure on manufacturing and lead to further jobs losses in the Midlands and North. Meanwhile, the private sector will expand, particularly business services and finance centred more in London and southern England. This should depress property prices in the north and stimulate property prices in the south and London. As employment increases in the SE, more people will arrive, and because building is almost at a stand-still, housing shortages in London and SE England will get more acute - further pushing up house prices and rents.

In summary, if Labour gets into power again, it will be good news for the North, Midlands and Scotland and bad news for southern England and London. If the Tories get into power, the converse will be true. Good news for London and southern England. Make no mistake, nothing has changed from 35 years ago. Labour want to expand the public sector because these people tend to vote Labour – they will scaremonger these old and new voters – that they could lose their jobs until the Tories. Meanwhile, the Tories will want to expand the private sector and quash the unions – because these people tend to vote Tory – they also believe it’s more economically sustainable. Yes, this is rather simplistic – but we believe it is a fairly frank and accurate reflection on what happens.  We want to forewarn property investors, so you don’t get a surprise when something happens. A hung Parliament is probably about the worst thing that could happen – businesses and banks hate uncertainty – growth would likely be far lower in this outcome. Interest rates would rise as Sterling dropped – because investors would believe there would be delays in the budget deficit being tackled.

We believe there is a 50% chance of a Tory majority, 35% chance of a hung parliament and a 15% chance of a Labour majority. If Sterling recovers, and the UK keeps it’s triple AAA rating because the budget deficit is seriously tackled – it should lead eventually to far high growth in business, efficiency and eventually tax revenues as the private sector expands and the public sector contracts – a rebalancing of the economy to something more sustainable.  

So the minute you think the Tories will get into power, make sure you focus your investment in London and the south. The north could stay depressed for quite some time – the shake-out from 13 years of public sector expansion would take five years to pay out. And we certainly haven’t got five years to wait around. If you think Labour will get into power again, seriously consider stopping investment in the UK – because spending would likely continue to increase and problems would get worse.

In any case, some additional highlights for London are the Olympics in 2012, Crossrail in 2017 and the new Javelin trains from Kent to London. 800,000 people are expected to swell London’s population in the next ten years – and they are almost all young mobile intelligent people that are looking to the future. London attracts top talent. We don’t think this will change – too much arts, culture, interest for young people.  And when you get top talent – you get top financial performance. The tax on high earners could also be reversed that could help assist attracting top talent and dissuade people from leaving the UK for tax havens. Overall, we remain fairly positive about London’s prospects, particularly if the deficit is tackled.

back to top