Funding and Forecasting - Savillspdf.savills.com/documents/FundingandForecastingFINALWM.pdf ·...
Transcript of Funding and Forecasting - Savillspdf.savills.com/documents/FundingandForecastingFINALWM.pdf ·...
Savills Annual Residential
Development Seminar
Funding and Forecasting
Thursday 8 November 2012
Funding and Forecasting
Michael Sharpe-Neal
Divisional Director, Savills Valuations
Yolande Barnes
Director, Savills Residential Research
Lucian Cook
Director, Savills Residential Research
Roger Orf
Managing Director, Apollo Global Real Estate
2012 Housing Market
Forecasts
How the extreme conditions of the
past five years will influence the
next five
Yolande Barnes
Lucian Cook
8th November 2012
Mainstream
The legacy of the credit crunch
Constrained mortgage availability
A weak economic recovery
Low interest rates
Average UK house price v 5 years ago
11% lower in nominal terms
24% lower in real terms
Housing transactions 45% lower than 5
years ago
House price movements – comparing 2 cycles
-20%
-10%
0%
10%
20%
30%
40%
Q3 2002 Q1 2005 Q3 2007 Q1 2010 Q3 2012 Q1 2015 Q3 2017
Nominal House Price Growth 1984 - 1999
Much stronger
house price growth
pre downturn in
previous cycle
Shorter sharper
period of price falls
in current cycle
Temporary rally in
2010 not seen in
previous cycle
House prices
stagnate, falling in
real terms before
recovery
Source: Savills Research using Nationwide House Price Index
The extremes 2012-2017
5 year House Price
Growth Nominal
Real (Inflation
adjusted)
London 6.6% -8.9%
South East -5.7% -19.5%
East -7.9% -21.4%
South West -10.2% -23.3%
West Midlands -14.0% -26.5%
East Midlands -14.6% -27.1%
Wales -15.5% -27.9%
Yorks & Humber -17.2% -29.3%
North West -18.3% -30.2%
North East -21.1% -32.6%
Scotland -12.4% -25.2%
Source: Land Registry, Savills Research
Mortgage lending
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Q3
02
Q1
03
Q3
03
Q1
04
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
Q1
07
Q3
07
Q1
08
Q3
08
Q1
09
Q3
09
Q1
10
Q3
10
Q1
11
Q3
11
Q1
12
Q3
12
Annual Change in Levels of Outstanding Mortgage Debt
Source: FSA Source: Bank of England
Gross
Mortgage
Lending £m Q2 2007 Q2 2012
Q2 2012
v
Q2 2007
75% LTV
or below 46,014 24,840 -46%
75%+ to
90% LTV 36,408 11,197 -69%
90%+ to
95% LTV 8,983 649 -93%
95%+ LTV 5,290 235 -96%
The Economy
Source: Oxford Economics
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2011 2012 2013 2014 2015 2016 2017
GD
P g
row
th f
ore
ca
st (%
)
Oct-11 Oct-12
Affordability
Current By 2017
Bank Base Rate 0.5% 1.9%
Lenders’ Margin 3.2% 2.4%
Mortgage Rate 3.7% 4.3%
10.9% 11.1%
16.1%
19.5%
0%
5%
10%
15%
20%
25%
30%
Mortgage payments as % of income
Interest Only Including Capital repayments
Source: Savills Research, Oxford Economics Source: Savills Research, CML
House price movements – comparing 2 cycles
-20%
-10%
0%
10%
20%
30%
40%
Q3 2002 Q1 2005 Q3 2007 Q1 2010 Q3 2012 Q1 2015 Q3 2017
Nominal House Price Growth Forecast 1984 - 1999
Much stronger
house price growth
pre downturn in
previous cycle
Shorter sharper
period of price falls
in current cycle
Temporary rally in
2010 not seen in
previous cycle
House prices
stagnate, falling in
real terms before
recovery
Delayed recovery
given lack of
mortgage finance
Savills Research using Nationwide House Price Index
UK mainstream forecasts
5 years
to end
2012
2013 2014 2015 2016 2017
5 years
to end
2017
Market
conditions
Nominal Price
Growth -11% 0.5% 1.5% 2.0% 3.5% 3.5% 11.5%
UK mainstream forecasts
5 years
to end
2012
2013 2014 2015 2016 2017
5 years
to end
2017
Market
conditions
Nominal Price
Growth -11% 0.5% 1.5% 2.0% 3.5% 3.5% 11.5%
Real Price
Growth* -24% -2.0% -1.0% -0.5% 0.5% 0.0% -3.0%
* using RPI
UK mainstream
The generation game
Transaction forecasts
Actual
Transactions (000s) 2007 Av 2008 -
2011 v 2007
Up to £150,000 651 385 59%
£150,000 - £250,000 599 302 50%
£250,000 - £500,000 289 149 51%
£500,000 - £1m 58 35 60%
£1m+ 16 11 70%
Total 1,613 882 55%
Source: HMRC, CML, Savills Research
Transaction forecasts
Actual Forecast 2017 v
2008 – 11
average Transactions (000s) 2007 Av 2008 -
2011 v 2007 2017
Up to £150,000 651 385 59% 492 128%
£150,000 - £250,000 599 302 50% 400 132%
£250,000 - £500,000 289 149 51% 205 137%
£500,000 - £1m 58 35 60% 53 152%
£1m+ 16 11 70% 19 174%
Total 1,613 882 55% 1,169 133%
Source: HMRC, CML, Savills Research
The 2012 legacy
Cost of mortgage interest + rent to rise
from £103bn to £135bn
Amount of housing wealth held by :
under 35s to fall 24% to £62bn
over 55’s to rise 16% to £1.65 trillion
Rent bill paid by under 35s to rise by 53%
from £24bn to £37bn
Source: Savills Research
The Rental Sector
Demand-supply gap will lead to further rent rises
Rental
Growth 2013 2014 2015 2016 2017
5 years
to end
2017
UK Mainstream
2.5%
2.5%
3.0%
4.5%
4.5%
18.2%
Greater London
3.0%
4.0%
4.5%
6.0%
6.5%
26.4%
... especially where demand is strongest
Rental
Growth 2013 2014 2015 2016 2017
5 years
to end
2017
UK Mainstream
2.5%
2.5%
3.0%
4.5%
4.5%
18.2%
Greater London
3.0%
4.0%
4.5%
6.0%
6.5%
26.4%
Prime London demand reflects business prospects
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Q3 1996
Q3 1997
Q3 1998
Q3 1999
Q3 2000
Q3 2001
Q3 2002
Q3 2003
Q3 2004
Q3 2005
Q3 2006
Q3 2007
Q3 2008
Q3 2009
Q3 2010
Q3 2011
Q3 2012
An
nu
al
Ch
an
ge
in
FT
SE
An
nu
al
RV
Gro
wth
All Prime London rents Change in FTSE100 Index (RHS)
Source: FTSE, Savills Research
.....supporting medium term growth
Rental
Growth 2013 2014 2015 2016 2017
5 years
to end
2017
UK Mainstream
2.5%
2.5%
3.0%
4.5%
4.5%
18.2%
Greater London
3.0%
4.0%
4.5%
6.0%
6.5%
26.4%
Prime Central
London
3.0%
5.5%
4.5%
4.5%
4.5%
24.0%
Prime London
Which way is the world going?
Debt
Corporate money
Equities
Capital growth
Derivatives
- Services
- Management consultants
- Automobiles
- Offices
‘Global’
Equity
Private Wealth
Commodities
Income
Direct Investment
- Land
- Utilities
- Food
- Residential Property
‘World’
Arrivals
Departures
Yields are low in the new world
75
100
125
150
175
200
225
250
Dec-0
5
Ma
r-06
Ju
n-0
6
Sep-0
6
Dec-0
6
Ma
r-07
Ju
n-0
7
Sep-0
7
Dec-0
7
Ma
r-08
Ju
n-0
8
Sep-0
8
Dec-0
8
Ma
r-09
Ju
n-0
9
Sep-0
9
Dec-0
9
Ma
r-10
Ju
n-1
0
Sep-1
0
Dec-1
0
Ma
r-11
Ju
n-1
1
Sep-1
1
Dec-1
1
Ma
r-12
Ju
n-1
2
Shanghai values Shanghai rents
Source: Savills World Research
... but fundamentals look stronger in the old world
75
100
125
Dec-0
5
Mar-
06
Jun-0
6
Sep-0
6
Dec-0
6
Mar-
07
Jun-0
7
Sep-0
7
Dec-0
7
Mar-
08
Jun-0
8
Sep-0
8
Dec-0
8
Mar-
09
Jun-0
9
Sep-0
9
Dec-0
9
Mar-
10
Jun-1
0
Sep-1
0
Dec-1
0
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
London values London rents
Source: Savills World Research
Past 5 year growth
Source: Savills Research
+11%
+22%
+13%
+7%
Ultra Prime Central
London +36%
Currency
-60% -40% -20% 0% 20% 40%
Indian Rupee
Russian Ruble
UK Pound Sterling
Euro
US Dollar
Hong Kong Dollar
Australian Dollar
Chinese Yuan
Swiss Franc
Japanese Yen
Prime Central London - currency adjusted distance from peak
Q3 2012 Q1 2009
Source: Savills Research
Global economy and sentiment
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Global GDP Forecasts 2012 - 2014
2011 2012
Source: Oxford Economics
A catalyst?
Stamp Duty
Mansion Taxes
Annual Charges
Capital Gains Tax
Inheritance Tax
Domestic wealth
Source: CEBR
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
180,000
200,000
220,000
240,000
260,000
280,000
300,000
320,000
340,000
360,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
20
11
2012
2013
2014
2015
2016
2017
Annual Change City Jobs
Prime London forecasts
2012 2013 2014 2015 2016 2017 5 yrs to
end 2017
Central
London
4.0%
0.0%
3.5%
8.0%
6.5%
5.5%
25.6%
Other
London
3.5%
0.0%
3.5%
6.5%
5.5%
5.0%
22.1%
Development
There is plenty of potential supply
Source: Savills and Molior
The funding issue
Borrowers/developers must be very experienced with a good track record of delivering
added value
Often banks will follow individuals who have the proven skills
Mainstream flatted schemes are particularly difficult to finance due to the potential sales risk
Forward sales or pre-lets make funding a whole lot easier
“Development finance is available to the right people in the right circumstances and on the right terms”
Only 66,500 units will be delivered
over next 5 years
Source: Savills and Molior
Supply against past sales capacity
(which has never satisfied demand)
0
2,000
4,000
6,000
8,000
10,000
12,000
Mid mainstream (£450-£700 psf)
Upper mainstream (£700-£1,000 psf)
Lower prime (£1,000-£1,500 psf)
Upper Prime (£1,500-£2,000 psf)
Annual m
ark
et
com
ple
tions
Past sales capacity
2012-2017 average
Source: Savills
Prime supply
Source: Savills
Lower Prime Upper Prime
0
50
100
150
200
250
300
350
400
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
£5m
+ s
ale
s
New build sales Resales
Super prime supply is set to more than
double - BUT an expanding market
Source: Savills
The unanswered questions
Who is going
to fund it?
UK clearers (4)
The specialists (5)
Sharia compliant (2)
Private bankers (4)
Other senior debt providers (10+)
Mezzanine providers (12+)
The unanswered questions
What do
they want
out of it?
Most lenders are at 60% LTC
Terms are often IRR driven
Profit shares are typically sought
savills.com
Roger Orf
Managing Director, Apollo Global Real Estate
Thank you