Provincial markets flourish as London battles falling values
This year has been variously described as the 'Year of the North' or the 'Year of the Provinces' in the British housing market.
The north-south divide that emerged in the British residential property market late last year will widen this year, with sales prices rising faster in the provinces than in the capital, analysts say.
Yet, some industry sources say provincial markets have peaked, and that excessive numbers of new homes are being built.
Property consultancy Colliers CRE residential research associate director David Moulton said: 'In the southeast, prices are 10 per cent down, but north from Birmingham, where the market is much stronger, they are 20 per cent to 25 per cent up. There are two housing markets, in effect - London and the southeast, and the rest of the UK.'
Halifax chief economist Martin Ellis said: 'The market is slowing down in southern England, but remains buoyant in other parts of the country, particularly in northern England. We expect this to set the pattern for the rest of the year with 2003 being the year of the north.'
Mr Moulton said the Scottish, Welsh and English Midlands markets were as strong as northern England. Residential prices would rise 15 per cent in the provinces, and 5 per cent in London and the Home Counties this year, he said.
'This is not a year for London and the southeast. It will be more than a year of the north, rather it will be a year of the provinces, where price rises will be treble those of London.'
The provinces would dominate Britain's property market until the end of next year, he added.
A combination of market cycle and economic regeneration meant provincial property markets were outperforming London, Mr Moulton said.
'One reason is the old ripple effect. The provinces are playing catch-up with London but also, more significantly, cities like Newcastle, Leeds and Manchester are more economically self-sufficient than 11 to 12 years ago, when they were more dependent on London and the southeast, which were then the financial drivers for the whole economy,' he said.
Retail, business services and modern manufacturing had expanded in the provinces, diversifying their economic base and ensuring they were less exposed to the stock market downturn than London, he said.
The capital is heavily dependent on its large financial services sector, which has been decimated by the three-year equities bear market.
Mr Moulton said low interest rates enabled people to buy homes in the provinces, which were attracting more first-time buyers than London because they were cheaper.
Confidence is booming in the provinces. New schemes are being introduced to build on earlier regeneration initiatives from the 1990s.
In Newcastle, plans are being laid to create Europe's largest business park by extending Cobalt Park from 36.42 hectares to 52.61 hectares. In Cardiff, a tram system will be introduced. In Birmingham the inner ring road, long considered an eyesore, will be demolished to make way for a residential and commercial expansion of the city centre.
Local authorities in Manchester want to make the city one of the 'knowledge capitals' of Europe by placing its universities at the core of a flexible technology and media economy.
Decentralisation is boosting the provinces. The government wants to move 20,000 civil servants out of London.
Prestigious London retail chains such as Selfridges and Harvey Nichols are expanding their operations in cities such as Leeds and Glasgow.
Mr Moulton said the government's abolition of stamp duty on properties valued at less than GBP150,000 (about HK$1.88 million) in regeneration areas boosted the property markets in many provincial inner city areas, where new housing projects were being built.
Large-scale residential redevelopment has breathed new life into many of Britain's inner cities in recent years. In Manchester, the city council expects its inner-city population to expand to 20,000 by 2005 from 1,000 in 1990.
Central Manchester residential property prices have quadrupled from GBP100 per square foot in July 1997 to slightly more than GBP400 per square foot this January in response to massive demand for homes there, according to Chestertons estate agents.
However, local industry sources claim some developers are struggling to sell properties because investment buying is drying up.
Property consultancy Lambert Smith Hampton has forecast falling prices in Manchester. Developer Crosby Homes has had to discount prices by a quarter at its Hacienda project in Manchester, from GBP280 per square foot to GBP220 per square foot.
Robert Hadfield, an analyst at Web site www.residentialinvestor alert.com, said: 'In the provinces, the cost of running a property is relatively high compared with the rental income. The rents are lower, but a fridge costs the same everywhere, and tenants are easier to find in London.
'Moreover, many of the new-build projects in provincial cities are too upmarket and built in the wrong areas. If you own a bare brick-walled loft apartment in a former warehouse in the wrong part of Leeds, then maybe the only thing you can do is use it to store bananas again.'
Mr Moulton said investors could still profit from finding the right property in the right location. He said gross yields ranged between 8 per cent and 10 per cent in the provinces, double that of London, which were 4.5 per cent to 5 per cent.
'Inevitably, there are certain amounts of oversupply where the market is strong, but there are no markets that are overheating and none where prices are about to fall,' he said.
He singled out Newcastle, Edinburgh and Glasgow as having strong growth prospects. Spacious, flexibly designed flats were most sought-after by tenants and buyers, he said.