Noticed anything different in your local newspaper recently? A different editorial slant at the back perhaps, somewhere between the sport and business sections?
You’re not alone.
Flip open a copy of last Friday’s London Metro, and there are no less than three large adverts for new property developments, promising to pay 5% deposits on everything from one-bed flats in Croydon to two-bed riverside apartments in Ipswich. In another four, would-be buyers can avail themselves of special ‘mortgage subsidy’ schemes to get themselves on the housing ladder.
Of course, developers have always offered ‘incentives’. But a year ago, they didn’t have to bend the knee so eagerly to get first-time buyers out of the woodwork. Now, they’re positively genuflecting. And looking at the news from Bovis Homes (BVS) yesterday, you can understand why.
Britain’s fifth-largest builder issued a profit warning on Tuesday, saying that not only was its order book down for the year, but earnings for 2008 would be “significantly lower” than in 2007. Sales reservations were down 70% in the eight weeks to May 4th, compared with last year, while total sales reservations were 30% lower. Chief executive Malcolm Harris went so far as to say that market conditions this spring were “absolutely awful”.
Bovis, the most profitable housebuilder in the UK in 2007 with profits of £123m is particularly exposed to the slowdown in the housing market, as over two-thirds of its customers are first and second-time buyers. The Bank of England’s special liquidity scheme was supposed to get these people buying again. But with the banks not budging on mortgage rates (unsurprisingly, they’re not keen to dole out money against assets that almost all of them have now publicly said will fall by at least 10% this year) this hasn’t happened.
More to the point, with property prices dropping across the board, many first-time buyers will wonder what the point is in buying is at all, when they can secure the same property next year for less. This is the fear for developers like Bovis, who are likely to scale back on building projects, just as Britain’s biggest housebuilder Persimmon said it would do two weeks ago. Persimmon said that sales had dropped 24% in the first four months of 2008, meaning it would have to stop opening new sites for construction. That’s not good news if you’re a tradesman.
Nor if you’re an estate agent. Agencies are closing branches at a rate of 150 a week, according to The Telegraph. The news that thousands of estate agents are losing their jobs hasn’t exactly been met with dismay – The Guardian asks “Who should we hate instead?”, while Jan Moir really sticks the boot in her Telegraph column: “What do estate agents contribute to society except fraught misery, vaunting self-interest and a percentage charge?”
Far be it from us to disagree. But a job’s a job, and one more estate agent on the dole is one less shopper on the high street. The optimists are still trying to point to the low levels of unemployment in the UK as a reason to be cheerful, but that excuse is looking weaker by the day.
People who build and sell houses aren’t the only ones whose jobs are under threat. This week, Swiss banking giant UBS (NYSE:UBS) said it would slash between 600-700 staff from its London operation. The group, which employs 9,000 people at its London offices is expected to slash 5,550 jobs world wide, 7% of its workforce, in order to save up to CHF 3bn (£1.45bn) a year. UBS is just the tip of the iceberg. Around 40,000 jobs are expected to go from the City this year, which will take more high-spending consumers out of the economy.
And of course, fewer City workers means less city office space will be needed. This takes us to the UK’s other property market, the commercial property market – the one that’s already in the midst of a huge crash. According to commercial property group Hammerson, rents across London’s financial districts are falling as companies have begun sacking staff. And judging by the bets placed by derivatives traders, commercial property prices “are expected to keep falling for the next couple of years.”
Of course, if you’re the owner of a commercial property fund, you probably already know this. The value on the most popular UK commercial property funds, run by New Star, Norwich Union and SWIP, have fallen by a fifth this year.
The bad news is this vicious circle will continue. More job losses means less spending in the high street, which means lower company profits, which means more job losses and more bankruptcies and more vacant space in both offices and the high street. That hurts banks, who tighten lending further, making it tougher for both consumers and companies to see out the hard times without going to the wall.
So our message to first-time buyers out there – stay put. Developers might be offering 5% off just now, but by the time this bust has run its course, they’ll practically be giving property away.