Sarah Arkle, chief investment officer at Threadneedle Investments, reports, ‘We retain
an underweight position in property.

We expect the slowdown in investment activity to continue, along with an element of pricing correction. However, the resultant effects on total return should be cushioned by income returns and healthy rental growth. A return to more orderly credit markets, combined with a cut in UK base rates, would strengthen liquidity in the market.’

Emerging Europe
It is hardly surprising if property investors continue to look overseas, with the emerging economies of Central and Eastern Europe proving increasingly popular. Neil Lewis, CEO of European specialist Property Secrets, observes that ‘Romania and Bulgaria are set to deliver some of the largest and fastest growth this year. Even Poland, which has already seen fabulous growth over the past two years, will still achieve a price growth of around ten per cent. This compares to the forecast of a drop in UK prices of two per cent and a larger drop in Spanish cities of five per cent.’

He also points out, ‘The pace of investments into Central and Eastern European markets by city institutions and funds, plus those of high and ultra high net worth individuals, has increased massively. This alone will support both the long-term economic investment and development of the region. It will also push up the prices of all property-related assets, be they land or flats.’

Confusing picture
The focus of many UK residential property portfolios during the boom was on the London market, with the result that investors are looking for a recovery to start there.

Richard Sexton, director of business development at e.surv Chartered Surveyors, feels that ‘It is currently extremely difficult to give a definitive picture of exactly where the market is at in London, although some trends are beginning to emerge. The central zone and the area immediately surrounding it still appear to be reasonably buoyant, with prices holding up in many areas, although activity has dropped, together with the number of instructions.

‘The good areas have a lack of supply and some demand – this holds up prices. In less desirable areas, where the credit crunch has had the greatest effect, there is increased supply and downward pressure on prices. We expect to know more by the summer, subject to the markets settling down and the impact of home information packs lessening.’

Improving returns
But every cloud has a silver lining and, for buy-to-let investors, things are looking up. The Association of Residential Letting Agents (ARLA), reports that buy-to-let investors have seen increases in their returns during the first quarter of 2008, with the average return on a mortgaged investment up 0.27 per cent at 21.7 per cent, while returns on cash purchases averaged 10.91 per cent. Flats showed a marginally higher return than houses, except in the north of England.

ARLA operations manager Ian Potter says, ‘Buy-to-let landlords behave with caution. The average portfolio contains just under seven properties, although half of all respondents to our review only hold one or two properties. The most likely buy-to-let purchase is a property between 50 and 100 years old in good condition. The least likely purchase is of properties that have never been occupied.’