A recession, if it takes place, will curb demand for offices that comprise 74pc of the company’s portfolio, while tough operating conditions for consumer-focused businesses are likely to lower demand for the trust’s retail locations that make up 18pc of its portfolio.
This could lead to a slowing rate of rental growth, lower occupancy levels and higher default rates.
However, the company’s portfolio consists of high-quality assets that are likely to perform relatively well in an economic downturn. Its office properties, for example, are energy efficient, well located and recently developed in desirable areas that are likely to experience robust demand even during a period of economic decline.
Similarly, its retail assets are situated in prime shopping centres and outlets that are less likely to be vacated by major brands who are seeking to rationalise their portfolios as online retailing grows in popularity.
Furthermore, investors appear to have fully accounted for a challenging period across the commercial property sector by demanding a wide discount to the company’s net asset value. Land Securities currently trades on a price-to-book ratio of around 0.7. While its net assets per share declined by 4.4pc in the first half of the year, and are likely to fall further in the near term, Questor views the stock’s current market value as being significantly below its intrinsic value.
Since first being tipped by this column in June 2018, the stock’s price has fallen by around 23pc. This represents a hugely disappointing return when the FTSE 100 has gained 3pc over the same period on its way to a new record high.
However, with dividends paid by the company since being tipped equating to roughly 18pc of the original purchase price, the stock’s total return is far less dispiriting than its capital return. And with a dividend yield of 5.2pc, its long-term income prospects remain sound.
Undoubtedly, Land Securities faces a tough near-term outlook as further interest rate rises are likely to weigh on the commercial property sector. But with a solid financial position relative to its peers, a high-quality portfolio and the capacity to use the market cycle to its advantage, it remains an attractive long-term investment while it trades at a substantial discount to net asset value. Keep buying.
Questor says: buy
Ticker: LAND
Share price at close: 719.2p
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Estate agents are more pessimistic about the outlook for the property market than they were during the depth of the pandemic, a new industry survey reveals.
A higher proportion of agents expect house prices to fall this year than did during the 2020 housing market shut down, according to the Royal Institution of Chartered Surveyors.
The share of estate agents who think house prices will fall over the next year is now bigger than at any point since October 2010, excluding the highs recorded over the previous three months.
It means property experts are the most pessimistic they have been since the aftermath of the global financial crisis.
The downbeat sentiment came as buyer inquiries fell for the ninth month in a row as high borrowing costs and the cost of living crisis hit affordability, RICS said.
Michael Burkinshaw, of Skysuruk chartered surveyors in Bristol, said: “Recent valuations from leading lenders suggest a 10pc drop in asking/sale prices in January compared to November 2022.”
He added: “In January, agents were struggling to sell anything and vendors were agreeing to significant drops.”
Separately, Britain’s biggest housebuilder warned of “marked slowdown” in the property market. Barratt Developments said consumer confidence had weakened significantly during the second half of 2022.
The FTSE 100 housebuilder cut its half-year dividend by 9pc on Wednesday and said it would reduce operating costs if sales fail to improve over the coming months.
However, David Thomas, chief executive of Barratt Developments, said there were signs that the market could be turning a corner as mortgage rates start to fall back from the highs seen at the end of last year.
He said: “Affordability is the biggest headwind currently. After the mini-Budget last year, affordability was driven off the cliff. However, if mortgage rates continue to drop, house prices fall and salaries rise, we may see improved affordability.”
Barratt said that weekly reservation levels last month were still substantially lower at around 45pc down from a year earlier – but less severe than the 60pc to 65pc tumble recorded in the three months to December 2022.
The more upbeat tone drove a rally in housebuilders’ shares on Wednesday, with Barratt, Persimmon, Berkeley and Taylor Wimpey all experiencing a jump.
While this will help meet net zero targets and bring down tenants’ energy bills, it represents a significant cost burden for landlords. Analysis by Outra, a data science company, found that over 3m of the UK’s rental homes have an EPC rating of D or below, with London and the West Midlands the worst-performing areas, with over 60pc of total rented properties rated D or below.
The average cost of upgrading a rented property to EPC C stands at £7,646, according to the Department for Levelling Up, Housing and Communities. But 63pc of landlords surveyed by Shawbrook Bank said the burden of EPC improvements made them more likely to sell their properties in the next five years.
Yet selling isn’t always possible, especially if it means banking a loss. Lawyer Richard Cooper bought a one-bedroom new-build flat in Shad Thames, central London, for £650,000 in 2005. “At the top of the market it was worth £850,000, but it is now worth little more than I paid for it,” says Cooper, 55. “Over the time I have owned it, the rent has gone up 18pc and the majority of that was over the last year.”
When he adds up all the costs, including rising interest rates and service charges, Cooper estimates he has lost about £28,000 being a buy-to-let landlord over the past three years. “If it weren’t for falling capital values, I would have exited the market 18 months ago,” he added.
And it’s not straightforward for landlords who’ve made a gain, either. In his Autumn Statement in November, Chancellor Jeremy Hunt announced that the annual capital gains tax allowance would be cut from £12,300 to £6,000 in April this year and reduced again to £3,000 in April 2024.
The average landlord who sold in 2022 in England and Wales sold their buy-to-let for £98,050 more than they paid for it, according to Hamptons. After deducting 10pc for costs, this would leave the average 20pc taxpayer with a £13,670 CGT tax bill, rising to £21,260 for a 40pc taxpayer.
When the threshold is reduced to £6,000 in April, Hamptons found that, at today’s prices, a 40pc taxpaying landlord who cashes in will pay an extra £1,770 in tax; from April 2024, their bill will rise by a further £2,610. Matthew Rowne, of The Buy to Let Broker, said: “This might make private landlords more reticent to sell.”
Increasing numbers of investors are opting to hold their properties in a company, with the number of companies set up to hold buy-to-lets doubling over the past five years to 300,000. Although the dividend allowance is being reduced, incorporated landlords are still able to offset mortgage interest before they’re taxed.
And some investors are even looking to buy – though only if they have deep pockets. “There are simply more people wanting to rent homes than there are homes available,” says Amelia Greene, of Savills estate agency. “Investors, particularly those with cash to hand, could take advantage of price falls over the coming months to secure stock with less competition from mortgaged buyers.”
It comes as figures from the Office for National Statistics show one in five people in the UK are on an NHS waiting list.
Of those, a quarter said that they had been forced to cut their working hours while seven per cent are on long-term sick leave. The survey of almost 5,000 households also found almost one quarter of adults who wanted to see a GP in the last month were unable to.
Saffron Cordery, the NHS Providers’ interim chief executive, said that the threat of strikes by consultants was “alarming for an overstretched NHS already battling to cope with the effects of the most widespread industrial action in its history”.
Government can’t ‘wave a magic wand’
Amid the increasingly bitter dispute over public sector pay, Rishi Sunak on Monday said he would love to “wave a magic wand” to boost NHS salaries, but the Government needed to get a grip on inflation, which meant being responsible about borrowing.
He suggested that pay rises could stoke a “vicious cycle” of inflation or increased taxes.
“Where we are with taxes at the moment, we can’t put them up any more, right, and we need to be getting them down,” he said.
Speaking at the launch of a recovery plan for urgent and emergency care, which aims to lift pressures on A&E units, the Prime Minister insisted the plans were “ambitious”.
The plan promises that by March next year, 76 per cent of A&E patients will be dealt with in four hours. The official target is 95 per cent, but currently fewer than 70 per cent of people are seen in this timeframe.
On Monday, Steve Barclay, the Health Secretary, said that there was no commitment to reaching the 95 per cent target because the impact of the pandemic had been “so severe,” saying the 76 per cent aim was “ambitious but achievable”.
So far, more than 80,000 appointments and operations have been cancelled because of strikes, with health leaders raising fears this number will “skyrocket” unless pay disputes are resolved.
The BMA said that the average consultant in England has experienced a “real-terms take-home pay cut of nearly 35 per cent since 2008/09” saying thousands have faced “large additional tax bills on their pensions” as well.
Dr Vishal Sharma, chairman of the BMA consultants committee, said: “Despite repeatedly outlining our concerns to Government, ministers have been unwilling to act.
“Senior doctors are cutting their hours or leaving the NHS in their droves, driven out of jobs they love by unfair pension tax rules and brutal cuts to their pay.
The indicative poll by the BMA will inform a decision about whether to ballot consultants on whether they would strike over pay and concerns about pensions.
Junior doctors are already being balloted, with their leaders having said they are “very, very likely” to strike.
Ms Cordery said: “More than 83,000 patients in the NHS have now had their appointments postponed due to the strikes in the last seven weeks. The shocking scale of disruption is a direct result of pay disputes between the Government and unions.
“Trust leaders are worried this could skyrocket with more strikes, which is an outcome no one can afford as trust leaders try tirelessly to bring down the elective care backlog. Worryingly, this could be just the tip of the iceberg if strike action continues.”
Schools walkout ‘hugely disappointing’
The walkout of NEU members across England and Wales will see schools close across the country after Monday’s failed talks.
Gillian Keegan, the Education Secretary, is understood to have told teachers that their above-inflation pay demands would be damaging at a time when the Government is trying to halve inflation this year.
In a statement released after the talks, she said it is “hugely disappointing” that the union is continuing with strike action.
“With talks ongoing on a range of issues, including around future pay, workload, behaviour and recruitment and retention, it is clear that strikes are not being used as a last resort,” she added.
Walkouts by train drivers on Wednesday and Friday are expected to bring the train network to a halt. Aslef, the trade body representing train drivers, has said that negotiations with rail firms had gone backwards six months since the New Year, with members pushing for further action.
Simon Weller, Aslef’s assistant general secretary, said there had been a significant deterioration in negotiations with the Rail Delivery Group, the body representing train companies, and said it was planning more strikes, and could see this being a long-term dispute that could stretch for months.
He told The Telegraph: “None of our members have crossed the picket line yet, and when we had a webinar last week, the questions [from members] were ‘when are we going to up the action?’ and ‘why don’t we hit them harder?’.”
When asked whether he felt the public was still behind the union, he said that public backing was higher than usual but it was not needed for Aslef to win the dispute.
“There is this new myth about only being able to win a dispute if you’ve got public support. It helps, but the reality is, do you have the support of strikers, that’s the crux,” he said.
At Foxton’s Chiswick headquarters, the mood is upbeat. Energetic music pulsates across the sales floor and staff leaderboards are projected onto big screens. A small army of “move consultants” man the phones, hitting a big red button that triggers flashing lights and a round of applause from colleagues whenever they win a fresh sale instruction.
“I vividly remember arriving for the first time, hearing the noise and feeling the energy,” Gittins says.
The 42-year-old started his career at Foxtons in the early 2000s when the Marmite agency – loved and loathed in equal measure – was still run by billionaire founder Jon Hunt, who urged his agents to “go to war” for their clients.
The agency’s aggressive sales tactics were credited with upending London’s stuffy property market in the 1980s and 90s.
However, the hard-charging attitude was lost under ex-chairman Ian Barlow and former chief executive Nic Budden, who took over in 2014. Frustrated investors accused Foxtons of squandering the housing boom and becoming “snow-flakey” — obsessed with trendy ESG measures while traditional ones, not least profit, fell by the wayside.
Gittins’ predecessor oversaw a 80pc fall in Foxtons’ share price over 8 years, while annual profits tumbled from a peak of £42m to just £5.6m – despite the number of offices rising from roughly 40 to 60. The slump was all the more galling given London’s booming property market at the time, juiced by low interest rates and Government support.
Investors were also upset with what was seen as rewards for poor performance: almost 40pc voted against the company’s pay policies in 2021, a year in which the company was criticised for paying Budden a near £1m bonus while declining to return furlough cash claimed from the Government as many other businesses did.
Barlow was ousted in July 2021 and Budden followed him out the door just under a year later after the appointment of Nigel Rich, an industry veteran, as the new chairman.
Part of the criticism levelled at both Budden and Barlow was that they lacked backgrounds in property sales – as did the rest of the board until Rich was hired.
No one can say this about Gittins. He joined Foxtons straight out of university before going on to work at Savills and then at Chestertons, where he worked his way up to become chief executive in 2018.
He is the archetypal estate agent in person: sharp suit, neat tie, closely cropped haircut, full of energy.
“I always tell my team that in this job you can never overdress,” he grins.
In his spare time he takes his Ferrari Challenge for a spin on track days and he used his three months of gardening leave before taking up to the Foxtons role to tear up Welsh rally circuits in his historic Ford Escort Mark II and go on a “boys’ trip” with a close friend, driving down to the Swiss Alps and back.
As well as trying to rebuild the culture, Gittins is ramping up the company’s use of data, something he did successfully at Chestertons.
He believes Foxtons’ secret weapon is its extensive customer database – built internally and known as ‘BOS’. The system is a compendium of almost every client the business has ever interacted with, containing details about their property and when it might next come on to the market.
Under previous management, the number of move consultants, whose job involves generating leads from the database, was reduced from 150 to 40 – even as the number of offices tripled. It meant the company lacked capacity to ramp up viewings when market activity spiked over the summer.
More people are now being hired. Gittins is also using data to tailor listings and help agents gauge how likely someone is to go on a viewing.
“The problem we have is that we used to be the innovator, but over the past 17 years we’ve stayed the same while our competitors evolved.
“That’s what we have to change now. It will take time. But it’s in the DNA of Foxtons – we are the original industry disruptor.”
Gittins is reluctant to criticise his predecessor but is palpably baffled by some policies that were put in place during his time away.
“With every stone I turn over, and ask why are we doing things in a particular way, I’m always told ‘because that’s the way it’s always been done’,” he says.
One thing that has changed dramatically during his time away is the focus on lettings. Initially focused on sales alone, lettings and financial services now represent roughly 65pc of Foxtons’ £140m annual revenues.
Boosting the number of lets even further is a top priority, but the shrinking pool of available properties, amid an exodus of buy-to-let landlords in London, makes that difficult. Gittins hopes to overcome this by buying smaller agencies.
Whether all this will turn the tide remains to be seen. Shares slumped last week after the company warned that 2023 would be “more challenging than the prior year” as a result of economic uncertainty and higher interest rates.
Two decades ago, the business enjoyed a market share of over 20pc – now it is just about 5pc.
Still, Gittins can point to green shoots: Foxtons’ share of new listings on Rightmove has doubled from 3pc to nearly 6pc, while the number of viewings booked this month has leapt higher than in 2019.
Embodying the work-hard-play-hard culture he is trying to revive, Gittins begins most days in the office at 7.45am and usually works through until 7pm.
“Going the extra mile is something that we believe strongly in and I know, from when I was an agent, that it makes the difference between making that sale or not,” Gittins says.
“That’s what we have to encourage. We have to be the most proactive agents. And that’s absolutely in our DNA.”
A house price crash risks “crushing” homeowners’ long-term finances, as those banking on property wealth in retirement will see their later life resilience fall seven times further than those who rent, new analysis shows.
The bigger the fall in house prices, the more significant the projected damage to retirement financing, as those who hoped to release equity from their homes to fund later life see their potential returns tumble.
Experts warn that retirees must be prepared to accept that they will not have the funds for the lifestyle that they had hoped for.
Modelling the impact of a house price crash scenario, where prices fall by 18pc, investment firm Hargreaves Lansdown found that average later life resilience – the extent to which working-age households are on track for a moderate retirement – among homeowners would drop seven times further than renters in the coming year.
Although homeowners have a stronger later life resilience score than renters, house price falls will strike a much more severe blow to their long-term financial prospects, spelling further gloom for those who have already had to contend with mortgage rates skyrocketing and other rising living costs.
Sarah Coles, of Hargreaves Lansdown, said: “House prices are heading for a fall in 2023, which risks crushing our finances. People with mortgages will still be reeling from the short-term blow of higher interest rates when they’re hit with the horrible news about the damage to their long-term financial resilience.”
Gary Smith, of Evelyn Partners, told The Telegraph: “For a lot of people, part of their retirement strategy is to downsize or enter into equity release to supplement the state pension and any other pension they’ve built up, so this will definitely impact upon their retirement plans, and the lifestyle that they hope to have might not necessarily be what they’ve planned for as a result of falling house prices.”
One in seven of those over the age of 50 will be forced to sell up or release equity from their homes as a result of the cost of living crisis, according to the LiveMore Barometer, an indicator of the financial priorities of older people.
For the 15 pc of those surveyed by LiveMore, a lender for the over-50s, saying that raising more cash to live on by downsizing or releasing equity was their top financial priority, precipitous falls in house prices would lead to ever-diminishing returns.
Capital Economics has forecast a house price fall of 12pc this year, with Halifax proposing a more conservative estimate of 8pc.
The recent findings were found as part of the Hargreaves Lansdown Savings & Resilience Barometer, which measures financial resilience out of a score of 100. The current average resilience score for later life planning is 49.1 out of 100 – but a house price crash would see a drop of 1.4 points among homeowners, compared with 0.2 points for renters.
The average fall in the score of Gen Z and Millennial homeowners was almost three times steeper than that of their Baby Boomer counterparts – down 2.2 points compared to 0.8.
Mr Smith said that many may consider opting out of workplace pension schemes in order to increase their income quickly to meet urgent living costs, with their later life financing taking a further hit.
Maxwell this weekend declined to comment on his plans for Royal Albert Docks. Success is far from guaranteed – not least because this would be his biggest development by far.
His previous projects include mixed use revamps on Bromley High Street and The Wolfe Towers, an art deco building in Brent, West London.
Another hurdle could be the London mayor and his ambitions. Maxwell would be expected to develop the site in partnership with City Hall and it is an open question whether Khan’s vision for the area aligns with Maxwell’s. Khan could place demands on the site that fit into his vision for London as he prepares to stand for a historic third term in office next year.
As London City Airport passengers look on quizzically at the development eyesore across the dock, the fate of Royal Albert Docks remains in the balance.
Johnson’s dream of an Asian-backed financial centre may well be over but green shoots are emerging in its place.
As Khan grapples with the cost of living crisis and focuses on reducing pollution in the capital, it is still an outside-bet whether Maxwell’s masterplan to turn one of London’s least loved areas into a thriving metropolis will become a reality any time soon.
Smart money does not always back the favourite.
The couple used a property sourcer to help select houses, although Wilkinson went to view each one before committing. In order to rent properties in Wales, landlords need to be licensed and Wilkinson had to attend a training course in order to qualify.
“If you want to succeed you have got to be prepared to do the things that other people are not, like giving up your weekends to go to Wales to look at a house or do a test,” he said.
They spent £25,000 upgrading their first property, got it revalued at £100,000, and remortgaged it in order to take capital back out and buy the next one. The couple use a letting agent to manage their properties, which means that their day-to-day involvement is limited to decision making if something needs fixing in one of the properties.
Their tenants, said Wilkinson, have been exceptionally reliable and the yields are good. A three-bedroom house in Tonypandy currently rents for about £600 per month. Less mortgage costs and agent fees the monthly income is around £450 (before any maintenance work required). Multiplied by eight properties, the annual income from the portfolio is more than £40,000.
Wilkinson says that managing the homes involves little more than a monthly call with the agent.
“I know you get horror stories, but I think that some people get into buy-to-let with the wrong attitude and expectations,” says Wilkinson. “I want to be professional and for my tenants to be happy because then they will not be a problem. You get what you give.”
A rental that will become a lifestyle change
Vic Paterson, and her husband Greg Pritchard, are long-distance property investors – somewhat accidentally. The couple live in Spalding, Lincolnshire, where they run a pain and injury rehabilitation clinic. In the depths of the pandemic the pair headed to the Scottish Highlands for a staycation.
“It was just incredible,” says Paterson, 48, a hypnotherapist. “I had the strangest feeling that I had come home.” They decided to purchase a holiday let and rent it out for a few years, with the medium-term goal of being able to relocate, mortgage-free, to Scotland.
In December 2021 they paid £180,000 for Tig Cottage, a two-bedroom worker’s cottage near the coastal town of Ballantrae, 70 miles south-west of Glasgow. It was badly in need of some TLC – a new boiler, damp work, redecorating and new doors were all required. But finding people to do the work was not as easy as they thought it would be.
Tax on landlords
As demand outstripped supply, this only increased prices further, with tax regulations adding to the froth.
“The tax system is oriented in a way that encourages investment in property effectively as a form of savings,” says Michael Gordon, acting chief economist at Westpac Institutional Bank.
“So we’ve tended to have house prices basically being dictated by their investment value rather than their value as a dwelling. It’s the investors that set the pace and anyone who’s been looking for their own home has had to pay up to match the investors. That’s been a long running issue.”
An attempt to change that without addressing the underlying issue of a lack of supply and excess demand has only pushed up rent prices.
In March 2021 the Government announced that landlords would no longer be able to offset their mortgage interest costs against their rental income. Landlords have responded by passing on rising costs to tenants.
Failure to build homes
A failure to build homes in the last several years has only led to more price inflation. The Government is making moves to reform the planning system, but builders now face a “behemoth” of red tape and rules slowing down the process, Olsen says.
As part of her pledges to voters in 2017, Ardern had promised to build 100,000 homes over 10 years for first-time buyers.
The target was scrapped in 2019 – at which point only 258 homes had been completed under the scheme – with a minister conceding that the target was “overly ambitious”.
“It was a bit of a laughing stock,” says Olsen. “The Prime Minister was elected partially on quite a strong focus around the housing market, affordability and home ownership for Kiwis,” he adds. “In fact, we’ve seen that affordability has gotten worse.”
Soaring energy bills have also made these properties less appealing for prospective homeowners.
Jonathan Hopper, of buying agents Garrington Property Finders, said older homes that require upgrades are seeing greater price reductions in order to attract buyers.
He said: “Properties that require refurbishment and a lot of work doing to them have fallen out of flavour. The call on cash to service debt and get the deposit where it needs to be to balance the mortgage figures at the moment has meant a lot of people that may have taken on a project are just not interested.
“Building costs have spiralled and getting hold of a builder is a challenge in itself, and then the expense of actually going through a full refurbishment with an unknown end value is just not appealing to buyers.”
The RICS survey also indicated that house prices were falling in more areas. The organisation’s price gauge fell further into negative territory, with a net balance – the difference between respondents reporting higher rather than lower prices last month – of -42pc, down from -26pc in November.
RICS said the “downward trend” in prices was “gaining further impetus”. All regions across England are now seeing prices soften but sentiment declined most sharply in East Anglia and the South East.
By contrast, the house price readings in Scotland and Northern Ireland had a marginally positive net balance, but this was still down from strong growth reported six months ago.
The gauge for new listings fell to its lowest level since September 2021, with a net balance of -23pc.
Enquiries from new buyers had a negative reading of -39pc, down from -38pc the previous month.
Agreed sales continued to plunge as the sales gauge hit -41pc, compared with -36pc last month.
More respondents said they expected sales to continue falling. Prices are forecast to continue dropping but estate agents were slightly less negative than they were in November.
In the rental market, tenant demand rose and the number of properties becoming available to rent continued its downward trend, meaning rents are expected to keep rising.