UK General Election UpdatePosted on 13th June 2017
Affinity Global Real Estate’s CEO, Robert Whitton, Says Opportunity Lurks in Uncertainty.
The adage that markets don’t like uncertainty has been brought into sharp focus by the unexpected election result last week. The property market especially dislikes uncertainty. As soon as an election looms, consumer confidence dips or doubt enters the national psyche and the market stalls. A positive election result may just have given a fillip to the market. A hung parliament means choppy waters for some time to come. But, from a property investor’s point of view, is it all bad?
I don’t welcome uncertainty, but we must all remember that opportunity lurks in uncertainty too. Neither political party has been particularly good for the real estate industry, but having no clear winner after an election is perhaps the worst possible result.
The Conservatives eviscerated prime London and the wider buy to let market with Osborne’s interventionist SDLT hikes and mortgage tax-relief cuts. The Tories directly and deliberately acted to cool the residential property market and it worked. But, their business-friendly policies have been a boost for the commercial sector.
A victory for Labour’s ideologically eccentric leadership could have spelled disaster for UK plc and the commercial property market, but social housing might have received a boost. As it is, we’ve ended up with a hung parliament, a weaker hand negotiating our one-way ticket out of the EU and flawed leader who may struggle to govern.
Back to basics
But, and this is a very big but… when uncertainty reigns, you must look at fundamentals. Go back to basics and look at what drives markets. While others obsess about uncertainty, cut through the chaos and look for those business cases with the most compelling need. Identify those market drivers that deliver short term advantage and take positions that deliver long term returns.
The most prescient drivers we’re discussing after the election result are:
- The weak pound
- London’s housing shortage
Sterling welcomes foreign currency to London
Overseas investors looking for longer term investments in the UK just earned an extra discount and while the political situation seems uncertain now, the country remains fundamentally strong. Plenty of overseas investment has been landing in the UK since the Brexit vote. While we expect the most jittery funds to sit on their hands for a while, we’re actively speaking to investors from four continents and last night’s vote hasn’t affected the attractiveness of our portfolio and pipeline.
A weaker pound invites increased investment from overseas. There is a commonly held opinion that there’s a lot of money looking for home at the moment, but investors are slow to commit. A small devaluation in the pound might just be enough to tip the balance in UK developers’ favour.
London’s housing shortage
I’ve talked a lot about the need for housing in London in the past, so there’s no great needs to cover the same ground again. But, it’s worth pointing out that the need for housing is one of those areas where there’s total agreement between all parties. London and the rest of the UK needs new homes to house our growing population. No-one disputes that.
A hung parliament doesn’t affect the need for local London boroughs to deliver the London plan and it doesn’t affect our plan to be part of the solution.
We’ve been saying for years that the only way London can solve this housing crisis is to prioritise regeneration of outer zones. That hasn’t changed and, given that there is political common ground on this need, we are hopeful that housing will be an area that can be prioritised over the next few years.
Inflation outstrips income
Household incomes haven’t kept pace with inflation since the last major downturn and this is creating a major affordability issue. George Osborne’s interventionist strategies for keeping a lid on property market prices may have worked in prime London and with used stock, but new builds are costing more to deliver and that has to be reflected in prices.
Young property buyers in London have three ways of making a property purchase possible; Live in higher density accommodation, live further from the centre or live out of town.
Much of outer London is low rise, low density stock. To make property more affordable, smaller footprints and well-designed and better managed higher rise units are a must. The case for regeneration has already been proved and we’re pleased to be part of the solution as we have a land development pipeline which will create more than 1,200 good value homes in Greater London.
Outer London used to be inaccessible, but new transport infrastructure improvements and gentle gentrification are making previously provincial suburban town centres accessible, attractive and they’re still affordable.
London’s burgeoning population continues to pressure prices so young Londoners with affordability issues can look further afield to get on the property ladder. There are plenty of market towns within 40 minutes commute of London offering excellent value and the scope for capital growth too.
The UK’s still open for business, let’s get on with it
No-one wants a hung parliament, but my advice is not to get too hung up about it. We all need to get on with business. We believe that uncertainty throws up tremendous opportunities and we’ve got the resources, infrastructure and team to exploit them. We’re still open for business.
Robert Whitton founded Affinity Global Real Estate in 2012 and is leading its rapid expansion. In 2007, he co-founded ROM Capital and launched a £400 million UK Opportunity Fund with Lloyds Banking Group Plc. ROM Capital built a diverse portfolio of property assets in the UK, including the development of Everton Football Club’s new Training Academy and managed assets worth over £900m for Credit Suisse, NAMA, AIB and others.
In 2003, he co-founded aAIM Group Plc with City Financier Mark Tagliaferri (formerly of Nomura Principal Finance) in which Sir Alex Ferguson among others became founding shareholders. Under his leadership as CEO from 2003-2007, aAIM transacted over £3.5 billion of property deals in the UK and Europe and built a large and diverse portfolio through financial engineering and syndication.