Country seeing a two-tier housing market

The global estate agent, which has offices in York, Harrogate and Leeds, said equity is increasingly concentrated at the prime end of the market in the capital, while elsewhere mortgage finance remains constrained.

“The attraction of London’s transparency and relative liquidity at most stages of the cycle has increasingly been supplemented by the significant rise in demand for rented accommodation and the associated growth in rental values,” said Savills as it reported half-year results.

“In contrast, the country market remained quiet for much of the period with 16 per cent fewer exchanges than the first half of 2010.

“We anticipate that this two-tier market will continue through the second half and into 2012.”

The estate agent’s comments will fuel concerns over a widening North-South divide – a disparity the Yorkshire Post is trying to address through its Fair Deal for Yorkshire campaign.

However, Savills said London’s property bubble is likely to feed through to other prime areas in coming years, such as parts of North Yorkshire.

“We expect it to spread outwards,” said Yolande Barnes, head of residential research at Savills. “York and Harrogate may very well see some of this as the money moves from the prime London market to the prime country market. (But) it’s not happening at the moment. It’s going to be years rather than months.”

She added even when prime residential markets in the regions begin to grow, there will still be disparities within areas.

“There will be quite a big difference in even grade A and grade C properties, even within the same area.”

Savills’ underlying pre-tax profits in the first six months of the year surged 20 per cent to £20.6m. Revenues were up 10 per cent at £335.8m.

The company increased its interim dividend by five per cent to 3.15p per share.

It ended the period with new cash of £25.9m, up from £20.1m a year earlier.

Savills’ UK residential transaction fee income increased by 22 per cent to £47.9m, which the estate agent said reflected the very strong prime central London market.

It substantially increased its market share in properties valued over £5m, and the value of its average London deal increased 17 per cent to £2.8m.

The group said despite considerable economic and international turmoil, the London residential property market is seen as a “safe haven” for the world’s investors.

London prices are being boosted by foreign cash, said Savills, as wealthy buyers pile into the capital’s luxury houses and apartments.

Chief executive Jeremy Helsby said: “In the UK and continental Europe, we expect transaction markets to remain unsettled although the fundamentals of the prime London residential market remain positive.”

Savills’ UK commercial property deal income edged up to £19.7m from £19.2m a year ago, which the estate agent said was again helped by the strong London investment market.

Ms Barnes said the concentration of equity in the housing market has led to a divide between “those who have it and those who do not”.

She said: “This is a generational divide: equity is concentrated among the older age groups ; it is a geographical divide: equity is concentrated in London and the South, and it is a tiered divide: equity is concentrated at the prime end of the market.”

As a result of less housing equity feeding through to the regions, Savills said prime regional valuations at the end of June were 1.8 per cent below a year earlier.

It expects prime Midlands/North property values to fall 2.5 per cent this year, before rising two per cent in 2012.

Savills said Asia Pacific was also strong in the first half, with residential fees up 42 per cent to £10.5m, but efforts by the Chinese government to cool its economy has started to impact sentiment over top end properties, which is filtering across the region.

Mr Helsby said he saw no material changes in the outlook, but added the potential effect of the current social and economic volatility may mean some reduction in volumes, especially in Hong Kong and Singapore.

Numis Securities upgraded its rating to “buy” from “hold” on valuation grounds.

“Savills’ first half results are strong and ahead of expectations. However, we are leaving estimates unchanged to reflect the uncertain outlook,” said Numis.

“In our view the shares are too cheap trading on sub 12x, considering Savills’ brand presence, its exposure to emerging markets and the resilience of counter-cyclical revenue streams.”

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