Property prices set to fall further

03 December 2007
The November Nationwide Housing Index revealed that house prices in the UK had fallen at their sharpest monthly rate in 12 years, dropping by 0.8 per cent, bringing annual house price growth down to 6.9 per cent.

"The 0.8 per cent monthly fall is the first since February 2006 and the largest monthly fall since June 1995," confirmed Fionnuala Earley, Nationwide's Chief Economist.

And according to LaSalle Investment Management, it is not just the domestic housing market that is suffering – in its Investment Strategy Annual, released today; the real estate specialist says that commercial property prices are likely to take a massive tumble too.

LaSalle is predicting that commercial property prices in the UK are going to fall by a further 10 per cent, while investors who have cash tied up in the US property market could see losses of between 15 and 20 per cent.

"The IPD monthly index is already down 4 per cent since the summer", said Robin Goodchild, head of European research and strategy at LaSalle, "and will fall more to the year-end and into 2008. We expect to see another 10 per cent, although it is possible we could see an overshoot."

LaSalle also predict default rates of around 0.5 per cent in the UK, and says this could double if economic growth continues to slow.

But, says Goodchild, LaSalle does not believe that markets are "heading for an early 1990s-style hard landing as there is little risk of over supply;" however, he does say that the recovery opportunity is not likely to be as compelling as 1993/94 either.

"There is no shortage of capital available to invest in real estate," he continued, "as allocations continue to be increased and funds have unspent equity, so prices are not likely to fall significantly.”

LaSalle says there are some good property investment opportunities in emerging markets like Japan and some of the developing countries on mainland Europe, and that despite the slowdown in the UK and US, there are still plenty of good deals available.

“Institutional investors are generally increasing their allocations to real estate," said Jacques Gordon, Global Strategist at LaSalle. "Fundamentals remain strong and are capable of weathering a slowing global economy, while tighter lending requirements in North America and Europe are putting moderate-leverage investors in a better position to secure deals at improved pricing”.

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