The story on UK building, as told by statistics gathered by private and public organizations, is mixed. The best advice is to get good advice.
There is a flurry of information regarding construction starts in the UK in 2013 – some of it encouraging, some perplexing. Making sense of it for real asset investing is the challenge of the day.
Much of what the Royal Institution of Chartered Surveys (RICS) predicted at the end of 2012 has come to pass. A pick up in housing starts has indeed occurred, but not until the second quarter after a small drop in the first quarter. Overall for the year, RICS predicted 115,000 new housing starts. But while its unclear where the year will end up, a survey of data from around the UK reveals the following somewhat tantalizing details:
• Glenigan Constructing Insight reports that for all types of construction – private residential as well as social housing, healthcare, education, industrial and infrastructure – activity was up 2 per cent in the second quarter of 2013 (as compared to the same period one year prior).
• Infrastructure leads the way with an increase of 41 per cent growth. By Glenigan’s reporting, large road projects can be credited the most with this.
• Utility building is up 29 per cent.
• Housing starts are up 12 per cent versus 2012.
• Regionally, the West Midlands report an increase of 70 per cent (after only a 10 per cent rise in the first three months of 2013) of all types of construction.
• The South East, which experienced a 20 per cent decline in May was up again by one point compared to 2012, with private housing and infrastructure building responsible for those gains.
• All construction starts in Scotland were down by 37 per cent, an unfortunate trend with similar deficiencies over the previous six months.
• Government investment in health and education are restrained, leading to fewer and lesser-sized projects. The Priority Schools Building Programme might alter this to the positive through 2014.
The chief economist for RICS, Simon Rubinsohn, feels that first-time buyers of homes – rather, the lack of them – continue to be a drag on incentives to build new homes. “Even with the Funding for Lending scheme and some other government policies beginning to be felt in the mortgage market, many first-time buyers will continue to find it difficult to secure a sufficiently large loan to take an initial step on the housing market,” he says. Instead, he thinks the government should act to set up conditions that will increase building of rental or for-purchase housing, and to bring new development quickly onto the market.
This holds special implications for the land-to-housing development investor, many of whom apply alternative investment funds to property funds. While building may appear to be healthy today, there needs to be significant construction of new homes at an accelerated rate just to meet basic demand. But the strategic land investor him or herself must be sure this type of investment is appropriate for their own portfolios. First, they must work with a team of knowledgeable specialists who understand how to manage the entire process effectively. They also need to be willing to wait a minimum of 18 months before they see a return on investment. They also should simply get the advice of a personal financial counsellor who can objectively evaluate the strength of the joint venture land investment.
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