Cheap money, but the cheques aren’t free

News

01 June 2002

Well, something already has: most notably the amber warning to na9ve building societies and reckless private property companies from the chairman of the Financial Services Authority this week. Howard Davies is alarmed by the rise of loan to value ratios. He sadly didn’t name the building societies with “less experience” of the market or the “smaller UK private property companies” gorged with non-recourse debt.

His warning will not go as unremarked as the Bank of England’s 4 May polite throat clearing. Now the air is filled with nervous chatter, even though the economic ground feels fairly stable. With luck, lenders will take notice of the FSA, and LTV ratios will fall.

For that is what is happening on the other side of this not directly connected equation. This week’s Knight Frank report on the South East market outside London (p25) makes sober reading. And to its head of research must go the credit for highlighting the “mismatch” between investor and occupier demand.

Will this mismatch be resolved? In the long term, yes. But in the short term, no. The more uncertain the world, the more investors feel certain that property is the place to be: and if cheap money can also be borrowed against fairly certain rents, then so much the better. But will the occupiers be so willing to pay the same at the next break? Oh, let’s worry about that later.

EG 100: well-spread winners seized the day in 2001

On the first page of the nine-page EG 100 report (p41) is a chart showing that the combined earnings of the top 100 agents rose slightly from £1.4bn in 2000 to £1.5bn in 2001.

Not bad. But there were plenty of so-so performances. Who did best? In the top five it was Knight Frank, which saw turnover rise the most. Between five and 10, CB Hillier Parker and King Sturge shone. Between 10 and 20 it was Nelson Bakewell and Drivers Jonas. But honours this year must go to the firm at number 10: GVA Grimley pushed turnover up by 23%, more than any other top 20 agent. And it made profits of £7.8m after partners’ drawings.

The Ideal Agent in 2001, it seems, was the firm not too reliant on agency income in the South East and with a strong regional presence and consultancy income of at least 60% of the total: and, as GVA Grimley said last week, looking for a merger partner. Any offers?

An odd imbalance has occurred in one of the economic laws that govern the supply and demand of commercial property: the number of those wishing to occupy is going down while the number of those wishing to invest is going up. If this goes on for much longer, what will happen? Well, something already has: most notably the amber warning to na9ve building societies and reckless private property companies from the chairman of the Financial Services Authority this week. Howard Davies is alarmed by the rise of loan to value ratios. He sadly didn’t name the building societies with “less experience” of the market or the “smaller UK private property companies” gorged with non-recourse debt. His warning will not go as unremarked as the Bank of England’s 4 May polite throat clearing. Now the air is filled with nervous chatter, even though the economic ground feels fairly stable. With luck, lenders will take notice of the FSA, and LTV ratios will fall. For that is what is happening on the other side of this not directly connected equation. This week’s Knight Frank report on the South East market outside London (p25) makes sober reading. And to its head of research must go the credit for highlighting the “mismatch” between investor and occupier demand. Will this mismatch be resolved? In the long term, yes. But in the short term, no. The more uncertain the world, the more investors feel certain that property is the place to be: and if cheap money can also be borrowed against fairly certain rents, then so much the better. But will the occupiers be so willing to pay the same at the next break? Oh, let’s worry about that later. EG 100: well-spread winners seized the day in 2001 On the first page of the nine-page EG 100 report (p41) is a chart showing that the combined earnings of the top 100 agents rose slightly from £1.4bn in 2000 to £1.5bn in 2001. Not bad. But there were plenty of so-so performances. Who did best? In the top five it was Knight Frank, which saw turnover rise the most. Between five and 10, CB Hillier Parker and King Sturge shone. Between 10 and 20 it was Nelson Bakewell and Drivers Jonas. But honours this year must go to the firm at number 10: GVA Grimley pushed turnover up by 23%, more than any other top 20 agent. And it made profits of £7.8m after partners’ drawings. The Ideal Agent in 2001, it seems, was the firm not too reliant on agency income in the South East and with a strong regional presence and consultancy income of at least 60% of the total: and, as GVA Grimley said last week, looking for a merger partner. Any offers?