“When you’re feeling in the dumps/Don’t be silly chumps/Just purse your lips and whistle, that’s the thing, and…/Always Look on the bright side of life.”
Right now, not the easiest counsel to follow from the closing song of the 1979 Monty Python film Life of Brian. But take solace in the line: “If life seems jolly rotten/There’s something you’ve forgotten.”
Well, don’t forget the war in Ukraine may bring regime change in Russia. Don’t forget that nerves are steadying following chancellor Kwasi Kwarteng’s earthquake mini-Budget as the interest rate seismometer needle settles around the 5% to 6% mark. Now, imagine the upside of these scenarios for property in 2023.
Why? To retain a sense of balance. The sector is poised on the lip of a 2007-09-shaped pit. “This is the most significant time for property for years,” says a well-known developer who has been around for 40 years. Not least because capital values are starting to slide down the lip of the pit.
As veteran Stifel analyst Alan Carter put it last week: “The impact on real estate values could, if sustained, be anywhere between containable to catastrophic, which is why buyers are as rare as rocking-horse deposits.” Carter added: “There appears no grappling hook on which to hang as to where capital values may fall.”
In August, the CBRE All-Property Capital Growth index recorded a 1.6% fall, the first since the pandemic began 16 months earlier. REITs normally trade at a 25% discount to the net asset value (NAV) of their properties. That discount to NAV has doubled to 50% in recent weeks.
Between July 2007 and September 2008, values fell 24%, then a further 26% in the following nine months. There was no grappling hook. Prices went into freefall. But valuers failed, quarter by quarter, to catch up. Lessons were supposed to have been learned. The Q4 valuations will show what has been learned.
“For the first time since 2008, I have sympathy for valuers,” said Carter. “Trying to establish the scale of negative yield movement has now become a pointless exercise. Instead, it’s more of a finger-in-the-air guess as to whether yields rise by anywhere between 50bps and 300bps, the former of which would be containable, the latter catastrophic. Neither I nor anyone else has a clue on that outcome at present.” Me neither, hence the opening paragraph. “Just purse your lips and whistle, that’s the thing.”
Finally, some cold cheer for property fund managers who have seen £100m in outflows since the mini-Budget and have started to lower the sluice gates. Gating happens every downturn. Every time the cry goes out “something must be done”. In August 2020, the Financial Conduct Authority recommended a 180-day notice period for fund withdrawals. New rules were promised “as soon as possible in 2021”. But nothing’s happened yet. Carry on everyone.
Consulting on consulting
On Tuesday, the City of London approved the updating of the rules to guide developers through the pre-planning application minefield. The 32-page ‘Statement of Community Involvement’ published in 2016 has been shortened and re-labelled ‘Developer Engagement Guidance’. Beyond that, plus ça change.
Developers hate hawking around sketch plans before permission has been granted. The statutory consultees are bad enough: the Campaign for the Protection of Rural England objecting to non-rural developments. English Heritage demanding clapped-out buildings are ‘repurposed’ rather than demolished.
Last week, the Sellar Group met with the worst type of objector of all: the celebrity chair of a conservation group. Not that the mild-mannered actor Griff Rhys Jones personally voiced an objection to 800,000 sq ft of offices to be planted atop Liverpool Street station. But as chair of the Victorian Society, he, rather than the society, garnered all the attention.
Chief executive James Sellar’s father, Irvine, suffered agonies under the pre-app regime at Paddington station and was forced (rightly) to squash his tower into a cube. Perhaps that’s why outsiders haven’t been allowed to see the 20-storey block at Liverpool Street. The architects, Herzog de Meuron, are world-class. Publish and perhaps not be damned.
Peter Bill is a journalist and the author of Planet Property and Broken Homes