Tory minority government: the fallout for real estate

From the snap judgement by the stock markets to the long-term implications from some of the industry’s leading experts, EG’s live feed covers the political news and analysis that matters to property.
Click here to find out the property fallout after the announcement of a hung Parliament.


Disastrous result could not have come at a worse time warns industry

Investors could take a breath in aftermath

Shadow cast over housing growth

Gavin Barwell loses seat, who could replace him?

Shares fall as market reacts to shock result

Election signals rocky road for house prices

 5.15pm: Less a celebration, more a funeral

As a Conservative Party member today feels more like a funeral when, in truth, it should have been a coronation, writes Martin Curtis, associate director at Curtin & Co. Read more…

 4.40pm: Elderly care still a big issue

The so-called “dementia tax” may have been one of, or perhaps the biggest, individual moment or policy that impacted the Conservatives’ campaign.

However, JLL has urged that this should not deter the government from addressing the issue of care for the elderly.

James Kingdom, head of research of JLL’s alternatives team, said: “Whatever the election outcome, social care and the impact of an ageing population needs urgent attention. The Conservative manifesto pledges may have contributed to the current outcome but this is an issue that is not going to go away.

“We hope that the government maintains its commitment to an overall review of elderly accommodation. Retirement housing has a major role to play in alleviating pressure on both care home and housing demand. We hope the new government still sees this as a priority.”

He added: “A minority government and the prospect of a softer Brexit deal is a boost for student housing. The removal of students from any migration target in the tens of thousands will support the outlook for the sector in the short term”

 3.10pm: Result won’t put off foreign investors

There has been a steady theme of stoic determination from the industry – whether in hope or expectation – that overseas investors will not be put off by the result.

Walter Boettcher, chief economist at Colliers International said: “Interest in the UK market from foreign investors from outside Europe is likely to continue unabated, as their motives are often shaped by events outside of the UK, especially long-term investors. 

“Domestic investors have already been exercising caution and this will no doubt continue until the shape of the post-election settlement becomes clearer and stabilises.”

Manish Chande, senior partner at Clearbell Capital, struck much the same tone.

He said: “This is not the result that many  were hoping for and it may create some short-term volatility. But the underlying factors that make UK real estate attractive remain, as demonstrated by the activity we saw after last year’s Brexit vote.

“However, a period of political uncertainty will bring renewed instability to the markets. This will likely act as a drag on occupational markets, but may serve as an unexpected catalyst to the investment market disconnect we had expected would be triggered by Brexit. Fundamentally tight supply in many markets will contain too much movement, but today’s results could prove an interesting shake down in some of our target markets.”

 3.00pm: Does this really mean two more years of May?

The prime minister appears to have got through the day still in position, despite now having an extremely fragile grasp of power.

Miles Gibson, head of UK research at CBRE, said he thinks the result shows Theresa May’s pot of political capital has swelled.

He said: “The decision to hold the general election at all comes with the benefit of a two-year extension to the PM’s political capital. For trading businesses in the UK, particularly financial services businesses, this extra time will help them plan for the consequences of Brexit.

“This uncertain outcome also means that not much other than Brexit will occupy ministers’ minds for some time, implying a welcome (if unintended) stability on real estate policy. Some of the more ambitious or expensive policies look likely to stay on the back burner purely because of a lack of capacity to implement them.”

2.40pm: Fall in sterling – and SNP support – could be good for UK

Investors are clinging on to a weaker sterling meaning more cash coming from overseas, as has been the case from Hong Kong over the past year, and are hoping that a lack of development will offset any softening of occupational markets.

Richard Gwilliam, head of property research, at M&G Real Estate, said: “While downside risk and the possibility of volatility remain due to the uncertainty regarding Brexit negotiations, we believe that UK commercial real estate is on a fairly steady footing. With the economy continuing to grow, investors should be comforted by real estate’s rental fundamentals, which benefit from ongoing (albeit softer) occupational demand and, for most markets, a lack of significant supply of space.

“UK property offers attractive yields, compared to both other asset classes and to other property markets globally. The renewed cheapness of sterling also boosts the UK’s attractiveness to foreign investors. The election result does not change our belief that there will continue to be investor demand for core real estate in the UK, and that the weaker pricing for riskier secondary assets should provide interesting opportunities for some investors.

“The fall in support for the SNP means that there is now a lower likelihood of there being a second Scottish independence referendum. In reducing this uncertainty, real estate assets north of the border should benefit.”

2.30pm: A rejection of ‘hard’ Brexit?

The loss of a majority for the Conservatives is being read by many as a rejection by the electorate of a ‘hard’ Brexit. This may mean greater freedom of movement and a greater chance that the UK could stay in the single market which, in turn, could help the occupational market – particularly in financial services.

Chris Ireland, chief executive of JLL UK, said: “The result suggests that the hard Brexit that many were assuming would now definitely occur looks somewhat less likely. That could be a longer term positive for the UK market. 

“Sectors with long-term structural support, such as logistics and alternatives, will remain strong. If the pound remains weak, retail and hotels will benefit – alongside UK manufacturing.

“But as before, JLL continues to believe the UK offers significant opportunities for medium and long-term investors.”

2.20pm: Sadek– the stakes could not be more high

Oh dear, what a mess. What an awful mess. And to think I just wanted it all to be over so that we could get some certainty and just get on! Read more…

2.18pm: Extending the period of uncertainty

Aside from all of the political machinations, the result of the election is unlikely to be a positive in the short-term, extending a period of uncertainty that has already seen depleted transactional volumes over the past 18 months.

Gerry Hughes, chief executive of GVA, said: “Today’s result is certainly not the outcome the property market had hoped for.

“Both parties must now act as a unified front to secure the best deal for the UK in exiting the EU, delivering much needed stability and clarity for the markets and confidence for UK and overseas investors.

“Reducing any uncertainty is crucial. A glimmer of positivity is that we may finally have greater transparency around the Brexit debates and negotiations. There is no longer any mandate for Brexit to be progressed behind closed doors.”

This was echoed by Colin Wilson, head of UK & Ireland, Cushman & Wakefield, who added: “A hung parliament is clearly not the outcome that business expected from this election.

“What we needed, only a year on from the EU Referendum, was a sustained period of political stability in the UK, especially for the important negotiations ahead. Instead, after weeks of domestic campaigning, in place of clarity we have further uncertainty.

“The result makes strategic planning for business harder and this could result in some decisions being delayed.

“However, if there is a lesson from our experiences over the last 12 months, it is that UK business, including the real estate industry, has become accustomed to uncertainty and managing through it – as evidenced by the many significant investment and occupier commitments since last June.

“Leadership, clarity and unity are the three things that business will be looking for now. ”

2.09pm: Oglesby – new government must stay focused

Chris Oglesby, chief executive of Manchester-based developer Bruntwood has called for the new government to keep focused on investing into infrastructure to help rebalance the country’s economy away from just London.

“From our perspective we have all known for years that the UK economy needs rebalancing. Bruntwood remains deeply committed to the Northern Powerhouse agenda.

“We want to see hard investment in infrastructure to improve East-West connectivity and steps taken to address fundamental issues, such as improving productivity and closing skills gaps.

“Better transport links and higher levels of investment in technology can be part of the solution. We hope these issues are addressed in core policies.

1.05pm: What does the General Election result mean for property?

More uncertainty, at least in the short term; a new housing minister; and potentially a new team of Brexit negotiators. Read more…

1pm: May confirms Brexit negotiations

Prime minister Theresa May has confirmed Brexit negotiations will start in 10 days as planned.

Speaking in Downing Street, she said the Conservative Party would form a majority with the Democratic Unionist Party.

In a brief speech, she said she would “put fairness and opportunity at heart of everything we do” and “build a country in which no one and no community is left behind”.

12.54pm: Not all shocks are created equal

12.51pm: Roberts – Economic advantages

Knight Frank’s chief economist James Roberts said the hung parliament could have economic advantages:

He said: “While the knee-jerk reaction to the news of a hung Parliament is likely to be concern, the direct property investment market will in our view see pricing remain stable.

“The slower transaction timescale for property, compared to equities or currencies, will allow time for the advantages of a hung Parliament to spread, and shape the market’s thinking.”

12.49pm: Deb-Rattray – investment safe haven will suffer a setback

“The UK’s status as a safe haven for investment will suffer a setback as a result of a hung parliament,” said Deepa Deb-Rattray, Partner, Berwin Leighton Paisner.

“A hung parliament creates additional uncertainty for the UK economy with lack of credible leadership through Brexit negotiations. It is not clear which parties can cooperate to convene a majority government to lead the UK through Brexit and beyond.”

12.48pm: Croydon loses its top spot

From a residential point of view the unseated housing minister’s constituency – or rather the borough in which it sits– has become synonymous in the last few years with one particular type of residential development, Permitted Development Right office-to-residential conversion.

Almost from the inception of the legislation, Croydon was at the forefront of this form of development.

Recently, however, there seems to have been a shift in the concentration of PDR development away from the south and to the west.

Although Croydon dominated the number of units under construction it was Ealing and Hounslow which experienced the greatest number of starts in 2016.

And the PDR power is set to remain in the west with Harrow and Brent having the greatest number of units in the permission pipeline.

The significance of PDR development is two-fold and somewhat contradictory.

One the one hand PDR units are among the cheapest units on the market, averaging at £400,000 per unit across the capital compared to an average of £800,000 for new build units.

However, PDR developments do not have to provide any affordable housing provision. LRR has calculated, albeit with the broadest of brush strokes, the number of affordable units “lost” to PDR developments since the start of the legislation in 2013 to be around 5,000 units.

11.45am: Weiner – transactions could slow

U+I chief executive Matthew Weiner is concerned transactions could slow in the wake of the election’s uncertain result.

11.22am: Meadows – investors might ‘take a breath’

JLL’s head of UK capital markets Alistair Meadows has said investors might “take a breath” in the election aftermath.

He said the election result will cause a short term risk to investment deals on the table, but expects continued appetite from international investors with a long term view.

11am: Emmett – Barwell’s loss a “huge loss” for the sector

Susan Emmett, head of housing and urban regeneration at the Policy Exchange says the failure of housing and planning minister Gavin Barwell to retain his seat is a huge loss for the sector.

10.30am: Analysis – Fewer homes… and opportunities

Early indicators suggest that the turnout for 18- to 24-year-olds was up by around 23% for this election, writes Nigel Evans, head of EG’s London Residential Research.

Undoubtedly housing was a key factor in this increase. And while we saw record numbers of homes under construction in 2016 a closer inspection of the figures revealed that, since 2012 there has been a significant shortfall in the number of social housing units starting construction each year.

That cumulative shortfall during the 2012 to 2016 period was in excess of 44,000 units. So the bottom line is that we are building fewer and fewer affordable homes in the capital, fewer and fewer opportunities to staircase to full ownership.

Could this lead to a harsh reality where, for a generation of Londoners home ownership will simply not be an option?

10.30am: Adam Challis – the last thing the market needs is another shift in policy

Director of residential research at JLL Adam Challis says the uncertainty caused by the General Election has cast a shadow over investment and housing growth, and the last thing the industry needs is another shift in policy after the loss of Gavin Barwell.

10.30am: How do the parties compare: General Election for property

Housing and property have been high on the agendas of all political parties in the run-up to the general election. After the shock election result we recap what the key policies relating to property are for the main parties. Read more…

10.24am: Randeesh Sandhu at Urban Exposure says nothing will be concluded over the next two years

Chief executive at Urban Exposure Randeesh Sandhu says that uncertainty is never good and the only certainty is that nothing is going to get concluded over the next two years on Brexit.

10.20am: Comment: Nigel Evans, head of EG’s London Residential Research

A hung parliament with all the uncertainties that entails is the last thing the industry needs, especially with a slowdown already occurring in the market.

The number of private residential construction starts in the capital plateaued in 2016 with nearly exactly the same number of starts as there were in 2015, some 28,000 units in each year.

This compared to a backdrop of exceptional growth in starts from 2012 led us to call the top of the market as far as construction starts were concerned earlier this year.

10.10am: Indifference or fear – how markets react to a general election

General elections since 2001 have inspired two emotions in the markets: indifference and fear.

If a majority is expected, companies have nothing to worry about – they expect a strong and stable government and their share prices move along as usual.

If the market expects anything else, their fear is priced in early. Read more…

10am: Shares fall as market reacts to shock election result

UK’s FTSE 350 housebuilder shares fell 2.4% in the first 15 minutes of trading today as the industry reacted to the shock election result that left no party with a majority in parliament.

Both the FTSE 350 housebuilder and REIT markets opened 0.6% down on close last night in a muted reaction to the Conservatives losing their majority but housebuilder shares continued falling throughout the morning. Read more…

9.36am: Toscafund’s Savouri – “Today is no different from yesterday in many ways”

Savvas Savouri, Toscafund Asset Management partner and chief economist, says: “Today is not different from yesterday in many ways”. He thinks the election result will increase overseas investor appetite for UK property following sterling’s devaluation.

9.34am: Day – key for retirement sector is planning change

Gary Day, executive land and planning director at McCarthy&Stone says key for retirement sector is planning change and that for the moment very little has changed.

9.32am: Editor’s comment – A positive role for real estate amid the uncertainty

Just as Newcastle Central won the race to be the first constituency to declare at 11pm last night, so Investec beat rivals to supply the first meaningful post-election real estate commentary – at 6.45am. Read more…

9.10am: Mark Farmer: “Could not have happened at a worse time”

Chief executive of Cast, Mark Farmer, who is author of the Farmer Review, commissioned last year by the DCLG and BEIS, said: “The result of a hung parliament casts further uncertainty over the UK and could not have happened at a worse time.

From a housing and construction perspective, the loss of housing minister, Gavin Barwell is disappointing as he appeared to have a good grasp of what is a very complex brief. What the next few weeks means generally for UK politics remains to be seen.

“The status of Brexit negotiations, commitments made in the housing white paper, the Industrial Strategy Green Paper and general approach to the construction industry as an instrument of policy are now all completely linked to the evolution of Tory party leadership and perhaps yet another General Election to overcome the impasse of a hung parliament.

“Whichever parties eventually form the government, there needs to be a comprehensive industrial strategy and housing policy focussed on both addressing skills shortages and increasing the UK’s structural capacity to deliver homes and infrastructure.”

9.08am: Clifford: “The clock is ticking on Brexit negotiations.”

Dean Clifford, co-founder of Great Marlborough Estates, said: “With the pound plunging off the back of renewed uncertainty, the hung parliament may pose a good buying opportunity for overseas buyers but looking at home this is the last thing we need.

“The clock is ticking on Brexit negotiations, and without a good deal with the EU, London will lose a clear part of its attractiveness as a place to live, and all of Britain will be poorer for it.”

8.55am: What does the result mean for planning?

Iain Gilbey, partner and head of planning at Pinsent Masons said: “Whichever political party eventually emerges in government, the renewal and growth of the UK’s physical infrastructure will be key to the economic and social wellbeing of the country. The message to all those involved in the planning system must be to “Keep Calm and Carry On”.

“The two main political parties have housing growth at the heart of their election manifestos – whilst the approach to funding that growth might be very different – the planning system will be key to its delivery.

“There will be a continued need for close collaboration between the public and private sector, and diversification of housing delivery models (including off-site construction) and tenures (particularly Build to Rent).

“The immediate future of the housing white paper is less clear. The loss of [former housing minister] Gavin Barwell (widely acknowledged to be a good housing minster on top of his brief) will leave a vacuum that will need to be filgoled quickly and decisively, if momentum is to be maintained in this important area.”

8.52am: Watney – Result could be a boon to the office market

Richard Garner, partner and head of commercial agency at Daniel Watney, said: “This could well be a boon to the City office market as likelihood of a softer Brexit grows.

The currency shifts we are seeing are likely to have a marginal impact, but while uncertainty remains, many global investors are now used to political volatility. London’s judiciary and transparency still hold it aloft as a safe haven for global capital.”

8.48am: Melanie Leech chief says sector needs plan for EU exit as soon as possible

Chief executive of the BPF Melanie Leech says its essential we have a government with a clear sense of direction for EU negoaitions as soon as possible, as the sector reacts to a hung parliament.

8.26am: Goldstein – UK is not a one-issue country

Jonathan Goldstein, chief executive of Cain Hoy has said that the shock result of the general election is a message to the Conservative party that the UK is not a “one issue country” and that the next government must take the issue of providing truly affordable housing more seriously. Read more…

7.57am: Does falling SNP vote rule out IndyRef2?

The SNP has lost 21 seats in the General Election as the Conservatives and Labour made gains in Scotland.

But while the Conservatives have lost their majority south of the border, the SNP has retained theirs, with 35 seats of the total of 59.

While the position of the SNP has weakened it has not ruled out the possibility of a second independence referendum, which will dismay business and property companies north and south of the border looking for stability. Read more…

7.20am: Industry reacts to shock election result

The property industry has begun to react to a shock election result that has seen the Conservatives lose their majority and Gavin Barwell lose his seat and subsequently his position as housing minister.

As a result, Jefferies is predicting a slowdown in housebuilding activity as a result of uncertainty surrounding Brexit and for the share price of housebuilders to take a dramatic hit as a result in the short-term, although advised investors to buy shares at a lower price while they could.

Jefferies is predicting that a hung parliament would depress housing transactions and cause households to defer their home moving plans meaning estate agents would be badly hit.

Invested Structure Property Finance warned that real estate will “lose favour” with institutional and overseas investors amid an early fall in sterling and the prospect of Brexit negotiations falling into turmoil. Banks would also be cautious about financing new developments.

It added that although it is too early to predict what the end result will be, the Labour manifesto for housing had “encouraging ideas”, including support for Help-to-Buy funding, which it said would give long-term certainty to first-time buyers and the housebuilding industry.

7.05am: Gavin Barwell loses his seat… but who could replace him?

Housing and planning minister Gavin Barwell has lost his seat after Labour made considerable gains the General Election.

The MP for Croydon Central received 42.4% of the vote, against Labour’s Sarah Jones who received 52.3%. Click here to discover the list of potential candidates for the role…

7am: Seats retained and lost

Housing and planning minister Gavin Barwell loses Croydon Central seat

Communities secretary Sajid Javid retains Bromsgrove seat

Labour shadow housing secretary John Healey retakes Wentworth and Dearne seat

Former housing minister Brandon Lewis retains Great Yarmouth seat

TELEGRAPH: Who could replace Theresa May as Tory leader? The runners and riders – and latest odds

6.27am: Hung Parliament confirmed