The global financial crisis had a significant impact on those professionals active in the property sector. Liquidity disappeared and in consequence construction activity declined and values fell. The whole sector suffered, with valuation surveyors at the forefront.
Thankfully, the tsunami of claims that surfaced between 2009 and 2012 has now receded and, save for the very exceptional ripple, the waters appear to have calmed. Only the more difficult or substantial claims remain, many are in litigation and those which have reached the courts have produced a rather mixed bag of judicial outcomes. Our Legal Update section contains links to our commentary on a number of these cases.
At the turn of the year concerns were being voiced that the market, particularly in London, was once again showing signs of over-heating. The demand which SDLT and CGT changes fuelled merely served to fuel those views. The CML reported that gross lending for March 2016 was 60% higher than in March 2015 and one multi-national property consultancy reported that sales of prime country houses rose by 24% in the first quarter of 2016. This last minute dash has resulted in a rise in claims as the need for speed caused errors to arise.
That demand did fall away after April, both as a consequence of the dash to complete prior to the changes in tax but also as focus turned to the referendum. When that outcome was known, activity plummeted as uncertainty grew, share values fell and Sterling lost ground.
Whilst confidence appears to be returning, it now becoming clear that there is going to be no early triggering of the Article 50 exit process and talk abounds throughout Europe of building a new partnership with the UK, values remain subdued. Opinion seems divided at present; with some reports of values remaining flat and others report modest declines. Overall, there appears to be a degree of stability and with the Base Rate now at an all-time low, coupled with increased liquidity in the market, it seems unlikely that there will be much turbulence any time soon.
However, we have seen growth in two particulars areas over the last few years.
Defect claims, which all but disappeared from view during the recession, have risen in number. That is perhaps no surprise as market confidence and transactional activity resurfaced from 2014 onwards. Purchasers, not fully conversant with the limitations of standard bank valuation reports, homebuyer report or and/or full structural and building surveys, are blaming their valuers for unforeseen costs as defects come to light. Ever more regular extreme weather events have served to magnify the problem.
Property management and lettings claims are also on the rise. These can involve a range of issues, whether it be want of maintenance, insurance deficiencies, ineffective Landlord & Tenant notices, property damage, service charge collections, personal injury claims or accusations of inadequate validation and identity referencing. These are likely to continue to grow in line with predictions about rental sector demand and the ever increasing forums open to dissatisfied customers to air their grievances.
In this regard, as well as the regulators and ombudsman services on offer, evidence suggests that individuals are educating themselves from internet blogs and general social media about how best to bring claims against professionals. This, combined with an increased appetite for complaint, means additional costs for surveyors and their insurers, not to mention the potential brand damage that can be caused by often inflammatory statements made on social media.
Never has it been more important for professionals to generate and retain comprehensive file notes and, make full use of modern recording techniques (especially digital photos) to make contemporaneous records. This, coupled with robust terms of business and clear reporting terms, remain key to a successful defence.
However, even the most gifted clairvoyant must be looking at the competing pressures on the current market and scratching their head as to what the next few years may bring. There is a real mix of factors in play:
- residential demand continues to exceed supply in many parts of the country;
- the recent lowering of the Base Rate points toward further growth in values;
- Zoopla's prediction that average UK property values would fall 18% after the Brexit vote;
- BOE Governor Mark Carney's confirmation that commercial real estate deals halved in the last year;
- many private, as opposed to institutional, investors seem to be holding back due to the post-Brexit lack of certainty;
- global efforts aimed at stimulating economies may drive cash-rich investors back toward real estate if the consequence is a prospect of higher yields than are available elsewhere;
- one consequence of Sterling's fall may be the increased attractiveness in prime property from foreign investment, one driver in the recent bubble in London.
We are also being told of more lenders returning to the market and for some, a pre-2007 ravenous appetite to lend. It remains to be seen what effect this will all have on our traditionally boom/bust cycle. Those lending say not, pointing to greater capital requirements and tighter underwriting criteria, but LTV ratios are already being relaxed in light of competition.
Rumours also abound that housebuilders have been offering investors substantial discounts and incentives. Reports vary that these discounts range from between 5% and 15%. Bulk purchase still drives incentives, the larger the number of apartments involved the more significant the bulk discount and/or incentive.
These may be short term practices but we all know what these led to last time around. This is all unsettling; with so many competing factors, it is far too early to predict what the 'new normal' will be or what the next few years will bring. It is a braver person than me to poke around in those tea leaves...