D&G Investment Management's view on the election results
General Election result will restore overseas investor confidence in the UK, and UK real estate assets, leading to a surge in capital values over the next five years.
This is a very bullish outcome for London real estate markets at all price levels.
In the short term (next 12 months), following a 12 month period where policy-risk has subdued this part of the market, we think residential assets above £2m could rally by up to 20%. But equally we think this result is very bullish in the medium / long term too. Over the next five years we think that capital values in the Prime London residential markets could double. This election result will force Labour to confront existential questions about its future and we think it will have to re-position itself as a more "new Labour", more pro - market party. Any likely federal settlement that is offered to Scotland and Wales by Cameron will force the Labour Party to work to attract English votes and this will require them to move towards a more market-friendly position.
Ten year UK investment window now open
Crucially , we think that there is likely to be a ten year cross party consensus (as there was between 1997-2008) that seeks to encourage wealth creation, foreign inward investment, tight public spending and lower taxes. This will keep UK monetary policy loose and be a big green light for overseas investors to choose the UK in general, and UK real estate assets in particular, and to be able to do so with a ten year horizon. London is likely to be the main beneficiary of these inward investment flows.
Accordingly we expect the following over the short and long term:
- Immediate second half 2015 rally in all London real estate residential assets
- £2m + market, especially in Prime, could rise 20% over the next 12 months and double within five years
- Immediate threat of Mansion tax lifted but very possible that some sort of “Commission” is set up to look into residential taxation (from which we think higher Council tax bands would emerge)
- Imminent significant inward investment into Prime London residential assets from parts of the world where major geo political uncertainty prevails
- Lower Gilt yields and sterling
- Very modest rental rises as wage-inflation stays low and the sales market heats up
- UK based Banks to be taxed less heavily than they feared (with RBS and Lloyds to be privatised soon) and to start to increase mortgage lending
- This result (particularly the UKIP share of the vote) will help Cameron in his negotiations with the EU over reform before a 2017 referendum.
- We do not expect the prospect of this referendum to be a major dampener on asset values and on any price weakness/dips we would be buyers
- No major house-building initiatives leading to the demand – supply imbalance remaining