Yesterday saw the publication of the May 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.
The Index shows that capital values fell by 0.5% in the month of May 2012 – the biggest monthly fall since at least November 2009 – and this follows monthly declines of 0.3% in each of April, March and February 2012 and preceding that, several months of almost flat performance. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started. Prices then increased by 15% in the year to August 2010 but since then prices are up a measly 0.3% and in the last 12 months prices have actually decreased by 1.2%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 9.7%. Commercial prices in the UK are now 35.2% off their peak in June 2007. The NWL index remains at 816 which means that NAMA needs to see a blended increase of 22.5% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).
The table below shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner.
The overall outlook for the UK economy is muted in the short term with the country suffering a double dip recession after a shock- though modest – 0.2% contraction in GDP in Q1, 2012. The UK has a so-called Office for Budget Responsibility (OBR) which is independent of Government and produces its own economic forecasts and commentary on fiscal policy. The latest report from the OBR was published on 21st March, 2012 and it forecasts GDP growth from 2012-2015 at 0.8%, 2%, 2.7% and 3%, deficit of 8.3%,5.8%,5.9%,4.3%, debt:GDP of 72%,75%,76%,76%, unemployment rate of 8.7%, 8.6%, 8.0%, 7.2%, house prices of -0.4%,0.1%,2.5%,4.5% and inflation of 2.8%,1.9%,1.9%,2%. S&P has confirmed the UK’s top Triple A credit rating with “stable outlook”. Both Fitch and Moody’s have put the UK on a negative credit watch
Monetary policy is overseen by the independent Bank of England and the current Bank of England rate is 0.5% and has been since February 2009. And there might even be another round of quantitative easing that has so far seen almost GBP 300bn pumped into the GBP 1.5tn UK economy.
About half of NAMA’s portfolio was located in London which has so far performed very well from Aug 2009 to Dec 2010 but has been more subdued over the past year. Supply shortages and money chasing a relatively stable investment have maintained prices and there might even be a short term fillip from this years Olympics. Beyond London and the English south-east, there is evidence of prices waning amidst sluggish economic growth and stunted lending.