The trust, which owns “last mile” logistics warehouses, has significant long-term recovery potential, not least because of the limited availability of suitable locations alongside competing demands from residential development. This contributed to a 20pc weighted average uplift in the two rent reviews that were settled in the second quarter of the calendar year.
It also signed four new lettings and sold two assets at an average 3.4pc premium to their March 2023 valuations during the quarter. Furthermore, it refinanced floating-rate borrowings with fixed-rate debt; 93pc of its borrowings are now hedged or fixed.
Debts amount to 29pc of gross assets, below the target range of 30pc-40pc, while its earliest debt maturity is in August 2025 and the weighted average maturity of its borrowings is six years. This provides a degree of protection against today’s elevated interest rates.
A decline in the Bank Rate should boost the economy and prompt higher valuations for commercial property. It should improve Urban Logistics Reit’s deeply discounted price-to-book ratio of 0.7. Currently, investors are demanding a wide margin of safety in case there are further declines in commercial property prices.
Should there be a further deterioration in the warehousing sector, though, the company’s relatively solid financial position would enable it to buy attractive assets.
Although the divi was held at 7.6p in the most recent financial year, the company’s yield of 7.1pc highlights its income appeal. This, along with a relatively sound financial position, a low valuation and the ongoing supply/demand imbalance among logistics assets, makes for an attractive risk/reward tradeoff. Hold.
Questor says: hold
Ticker: SHED
Share price at close: 107.2p
Update: Regional Reit
The worst-performing property investment trust in our Income Portfolio is Regional Reit. Shares in the office landlord have plunged by 74pc since their notional purchase in October 2016. Even when we include dividends received or declared that amount to 49pc of the purchase price, the stock’s total return is minus 25pc.
The company’s half-year results, released earlier this month, showed a continued fall in occupancy, which declined to 82.5pc in June from 83.8pc a year previously. The value of the portfolio also fell over the same period to £752m against £918m a year earlier as the commercial property market deteriorated.
Falling asset values contributed to a nine percentage point rise in the company’s ratio of debt to portfolio value. It now stands at 52pc, which is significantly higher than the target of 40pc.
Although all its debt is fixed or capped at a weighted average interest rate of 3.5pc, debt reduction is likely to be a key aim over the coming months.
In terms of valuation, Regional Reit’s price-to-book ratio of 0.4 and annualised dividend yield of 18pc, based on the recently cut dividend, suggest that investors have factored in many of the difficulties it faces. Undoubtedly it remains a risky stock to own.
But given the likelihood of improving economic conditions and a stronger long-term operating environment, it will remain a holding in our income portfolio.
Questor says: hold
Ticker: RGL
Share price at close: 27.05p
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Home sellers could be missing out on best offers because of commission fees earned by estate agents, Trading Standards has warned.
Many estate agents receive referral fees by recommending mortgage brokers, solicitors, surveyors and other third party services.
The boss of the enforcement authority for estate agents said these fees can be so high that it becomes more lucrative to choose a buyer using these preferred services.
James Munro, head of the National Trading Standards Estate and Letting Agency Team, said they have investigated cases of this type of illegal behaviour but warned that the problem is likely to go undetected.
Speaking to The Telegraph, he said: “We’ve seen commissions of 50pc of the price, which is just ridiculous really. In some cases, the consumer’s getting no benefit from them.”
Mr Munro continued: “If you’re thinking of buying a property, and you go in and they say, ‘Would you like to speak to our financial adviser or mortgage adviser?’ And you say, ‘No, I’ll sort all that myself. Here’s my offer for the property.’
“Well, that employee, sometimes on the bigger agencies, is on a commission, so if they can get those referral fees they will put that offer forward. But then there may be another offer which is lower, but that person is using all of the connected services, and mysteriously the higher offer just gets lost on the system.”
He said the cases were detected by buyers who had offers declined, checked publicly available Land Registry data and noticed that a lower offer had been accepted.
But the vast majority of buyers move on after their offers are rejected so these instances are “difficult to find out about”.
Estate agents are required to disclose commission fees up front but Mr Munro said “there’s a lack of resources to go out and police this effectively”.
He said the Government considered banning these commissions around three years ago but said they would wait and assess the impact of putting in tougher rules for transparency instead.
However, Mr Munro said it would “take quite a lot of resources and quite a lot of people to go out and actually investigate to give a realistic market assessment”.
He said: “The problem is that a lot of the time they’re not displayed. It’s a difficult one to enforce because you don’t know that they’re taking fees if they’re not displaying the fact that they’re taking fees.”
Henry Pryor, a buying agent, said buyers who are suspicious when their offers are declined still face an uphill battle to prove there was something dodgy going on because estate agents always say the offer was declined for other reasons.
He said: “It’s really difficult to prove but people in the industry admit and know that it goes on. It’s a scandal.”
House prices in Dubai are rising at the fastest pace in the world following an influx of Russian money.
High levels of immigration mean average prices in the Gulf emirate have soared by 15pc between mid-2022 to mid-2023 when adjusted for inflation, according to UBS.
The rapid growth was the steepest pace recorded out of 25 major global cities analysed by the investment bank.
Prices in Dubai grew at more than twice the rate recorded in Miami, the city with the second fastest growth.
Local agents said a flood of Russian buyers in the wake of the war in Ukraine has been a defining factor behind the boom.
Dubai has not followed the Western sanctions regime imposed in the wake of Russia’s invasion of Ukraine, meaning it is one of a few global cities that is still a safe haven for oligarchs.
Fadi Moussalli, at JLL property consultants, said: “One of the factors that exacerbated the growth is the influx of ultra high net worth Russians and also ultra high net worth Ukrainians.”
UBS said: “Residential transactions have gone through the roof.” There were 11,328 residential transactions in August, up 22pc year-on-year and the second highest monthly total ever recorded in the emirate.”
Half of residential buyers are from overseas, according to CBRE, and around 15pc of the total market is Russian buyers.
Nicholas Maclean, CBRE’s managing director in the Middle East, said: “The three largest markets appear to be Russia, India and other parts of Europe collectively.”
Mr Moussalli said wealthy Russian buyers were having a particular impact on prices. He said: “It started at the top end, with super high end luxury villas and apartments being taken up for rent or sale. Then there was a contagion effect and now it is generalised across the market, including the lower end.”
He added: “If you just walk on the beach or go to a hotel, you can see there is a big minority of Russian citizens residing in Dubai.”
Mr Moussalli said high-end shops in Dubai had been actively hiring Russian-speaking staff to court the new wealthy clientele moving into the city.
Beyond offering a haven to Russians, many people have flocked to Dubai thanks to its low taxes and the rise of remote work.
Mr Maclean said: “We’re seeing people from Europe coming here because they don’t like their current personal tax rates or because they are worried tax rates will go up over the next few years.”
Dubai has no personal income tax. The government has introduced a series of visa programmes since the pandemic with looser residency requirements, making it easier to move.
Despite the recent surge in house prices, Dubai property is still 25pc below its 2014 peak in real terms. In London, UBS found house prices have slumped by 14pc in real terms over the year to June.
While your estate agent will most likely be in charge of scheduling and managing viewings there are ways you can ensure the first impression potential buyers have of your property is a positive one.
If the weather allows it, keep the windows open and turn the lights on so the property feels airy and fresh for viewings.
Do not be afraid to share your experiences of living in the area. If there are elements buyers can relate to or look forward to it may improve their perception of the property.
It may also be worthwhile finding out any additional details on the viewers from your estate agent before they arrive. For example, do they have children and if so can you recommend local schools or playgroups?
Chris Husson-Martin, director and head of sales at Hamptons in Salisbury, says: “The best advice we can give is to take a step back and think about their own home with fresh eyes.
“Kerb appeal is very important, we encourage sellers to present the front of their home well, tidying up front gardens and the approach to the house is essential as this will be the first thing a viewer will see.
“The majority of buying decisions are made within the first few minutes, or even seconds of a viewing.”
In the current climate, buyers may be keen to put in an offer as soon as possible in order to help facilitate the sale of their own home, or not lose out on a more beneficial mortgage rate.
However, it is important not to feel pressured into accepting an offer straight away. Ultimately the process is a negotiation and if you have more viewings lined up, your home may even be the subject of a beneficial bidding war.
Sophie Archidiacono, head of sales at Hamptons Balham, says: “The more information we can share with a seller, the better we can help them to make a decision.
“I would always advise a seller to pick the buyer that suits their requirements best. Some sellers value matching timelines over an extra £5,000 on the offer, whereas some want a buyer in the most secure financial situation possible.”
Sellers may also be concerned about “gazundering”, where a buyer lowers their offer just before contracts are exchanged, essentially trapping the seller into accepting.
Ms Archidiacono advises sellers to be wary of buyers who are reluctant to disclose financial information.
Meeting the buyers face to face, will hopefully build a relationship between the parties and help you gauge mutual commitment.
John Lam, head of China property research at UBS, says the shantytown redevelopments contributed to an excess of supply, while Li says there was a failure to assess demand.
Country Garden, which narrowly escaped collapse in recent weeks, had built homes in cities where there was relatively little demand, Li says.
Across the country, she says there is now a “reality check as investors realise they cannot find tenants for the units”.
Loo says there is a lesson for policymakers across the world to avoid the mistakes made by the Chinese government.
“If there is a downturn and if policymakers want to really stimulate the economy, doing so via over-investment is probably not the right path to go,” she says. “This will lead to more severe structural issues down the road, which China is trying to unwind right now.”
Easing restrictions for first & second-time buyers
In an effort to boost demand, central and local governments have intervened to loosen some of China’s tough restrictions on property ownership.
Since 2015, the Chinese government trumpeted a mantra that “houses are for living in, not speculation” – but signalled a change in tone this summer.
Chinese leaders removed the slogan from the nation’s policymaking dogma at the end of July. Days later, China’s housing ministry announced plans to make it cheaper and easier to buy and said it would ease restrictions for people wanting to invest in a second home, according to CNBC.
Lam says the government has moved towards free market policies to shore up the real estate sector.
Local authorities have some freedom in setting their own rules but in recent weeks have started taking the lead set by Beijing.
Those who were not first-time buyers were previously required to have down payments as high as 80pc.
“Traditionally, this system has been to discourage second home ownership,” Loo says, adding that officials were concerned about speculative investment and the pricing out of first-time buyers.
The government has changed the rules so second-time buyers who do not own other properties can access the same down payments as first-time buyers. Second home owners remain subject to bigger down payment requirements.
Down payment requirements have also been lowered for first-time buyers. They used to be a minimum of 30pc of the purchase price but the floor has been dropped to 20pc.
While the halcyon days of near-zero interest rates are long gone, the IMF expects Bank Rate to fall in the coming years. This could make mortgages more affordable, while an end to the cost of living crisis and a significant pickup in economic activity may further boost demand for new homes.
In terms of supply, the UK continues to struggle to build enough new homes to accommodate a growing population. England’s is forecast to rise by roughly 220,000 people per year over the next decade.
While not every individual will require a home, only 150,000 new homes were built per year, on average, over the past decade. This suggests the issue of undersupply is unlikely to be solved – even with changes to planning laws that have been mooted for years.
Indeed, the industry’s concentrated structure and the vast land banks of major housebuilders, alongside substantial barriers to entry, mean incumbents enjoy a strong position.
While Barratt’s shares could fall further in the short run after declining by 40pc since first being tipped by Questor in January 2020, they have significant long-term potential. Investors who can cope with short‑term uncertainty are likely to be highly rewarded in the next boom.
Questor says: buy
Ticker: BDEV
Share price at close: 436.8p
Update: Polarean While Barratt has the financial strength to overcome temporary market difficulties, medical device company Polarean last week warned investors about its financial position.
Its half-year results stated that “it is anticipated that additional capital will need to be raised by the end of the second quarter of 2024… to fund the group’s activities at their planned levels beyond this date”.
Given a lack of certainty in its future existence, Questor recommends that readers sell the stock. Its 88pc share price decline since first being tipped by this column in June 2021 is hugely disappointing. However, its risk-to-reward ratio is highly unfavourable.
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Industry leaders have said that projects that would deliver more than 100,000 homes across the country have been prevented as a result.
A quarter of those are in “Red Wall” areas like the Tees Valley, Cumbria and County Durham, which the Tories need to hold to win the next election.
Swathes of the South and East Anglia have also been affected, with construction on hold across parts of Norfolk, Hampshire, Somerset and Wiltshire.
Homebuilders have branded the rules disproportionate, with housing contributing to just four per cent of such pollution, most of which comes from agriculture.
‘Serious concerns about the approach’
Labour had initially signalled that it would support the Government’s plans to scrap the EU-era regulations when they were first unveiled by ministers.
Lisa Nandy, the then shadow housing secretary, told the Commons last month her party would “support effective measures that get Britain building”.
But its position shifted after the proposals drew the ire of nature groups including the RSPB, which accused Mr Sunak of abandoning his green promises.
Last week, Matthew Pennycook, the shadow housing minister, said Labour had “serious concerns about the approach the Government have decided on”.
He said Sir Keir would still review the rules “with a view to addressing problematic delays and increasing the pace at which homes can be delivered”.
Builders have to submit far more supporting evidence because increased public scrutiny of planning applications has driven a surge in the use of case law in planning decisions.
Mr Brocklehurst said: “There was an unwritten social contract that used to occur between the generations, that we know we have to build housing for future generations.
“Up until the early 80s there was an acceptance of new house building. But that social contract seems to have slowly unwound and now people seem to be less willing to accept development near them.”
House price growth, which has far outstripped wage growth, has been key, Mr Brocklehurst added.
“Everybody is starting to view their house as a financial asset, as well as a place to bring up their family, and when people see it as a store of wealth, they get very concerned about anything that they imagine might reduce that,” Mr Brocklehurst said. “It has been a slow creep over 30 years, with an increased regulatory burden and changing social views.”
Edward Clarke, of Lichfields, said: “Every possible development that could affect anybody starts to get questioned much more when you’re in an atmosphere that is heavily politicised, not just between political parties but in local areas.
“Local authorities say everything has to be absolutely bulletproof before we take anything forward, just in case somebody brings up some vaguely relevant case law.”