By Tim Watts,

So why do institutions consistently invest in all other asset classes!

I think it’s fair to say we’re living in uncertain times, something reflected by the lack of stability and confidence in many of our investments. So it is staggering, to say the least, that the residential sector continues to be ignored by most institutional investors. It is over ten years ago that some of the great and the good prepared the foundations of the Residential IPD index. It has recently reported its ninth set of figures and, compared to the total return of commercial property, wins hands down. No matter which way you look it, however you twist the figures and whatever time frame is taken, the deeper you look the stronger the argument for investing in residential.

Residential outperforms other asset classes

At our student event a couple of months ago, guest speaker Rob Weaver clearly showed how residential not only outperforms all commercial sectors, but actually has a lower risk profile too. This is particularly apparent when considering the volatility of returns against equities.

Lower volatility (risk) with Residential

To highlight this superior performance, let’s take a hypothetical £100,000 investment made in 2000 – the start of residential IPD figures. As of December 2009, that investment would have been worth £235,000. The same sum invested in city offices would have only amounted to £125,000.

Of course, focusing on a specific time frame doesn’t necessarily provide us with an accurate picture overall. Yet fans of residential can point to higher returns over virtually any period. Go back as far as 1960 and residential IPD shows a house price growth of 274% in real terms. For commercial property, that figure is -55%. That’s right. A difference of 329%! Just think how your pension fund would be looking if it had invested in UK residential over the past 35 years!

Residential Property vs Commercial Property

This is why Inspired is committed to funds linked to UK residential performance. And that’s before we even take into account that growth in house prices, whilst a key driver of total returns, is not the sole factor. Income stream also plays a significant role throughout the life of the investment and adds to the attraction.

It’s not for me to expound the reasons why institutions have chosen to ignore residential. Those that argue they have not been able to should look at those that have made a clear commitment to the sector – most notably The Welcome Trust. Trust me, I’ve heard the excuses and that’s all they are; excuses rather than informed and rational investment decisions. For me, the question isn’t why part of a fund should be allocated to residential. Instead, it’s why commercial should form part of a fund that invests in residential.

UK residential property - long term outperformance

Most private investors and fund managers that have invested in residential will, I’m sure, quietly confirm that they were some of the best investments they ever made. That’s why it is so important to offer investors the opportunity to benefit from such resilient returns.

By Martin Skinner,

Martin Skinner

Well after keeping radio silence for what seems quite a while, I’m proud to introduce a new member of the team to everyone.  Jack Christopher Skinner was born on the 26th March 2010!

Jack Christopher Skinner

Jack has already chosen his football team (Tottenham Hotspur needless to say) and is also starting to show signs of his parents’ impatience.  Like most youngsters these days, he’s also better at the high tech stuff than they are and is fully operational with his own Facebook, Twitter, You Tube and Google Buzz accounts.

Jack Dribbling for Spurs

So as you can imagine, life has been even busier than usual in the Skinner household.  In fact, this is the first time I’ve really been able to sit back and reflect on how dramatically things have changed over the last couple of months.

We’ve created a new family, the country has new leaders (hopefully better than the last lot), and Inspired has made its first great property acquisitions with Urban Share. Even the sun has come out!

The three properties bought so far include this 3-bed house in Bush Road, Surrey Quays, SE16 bought for £228k

Then again, some things haven’t changed and we still love London Residential Property.  Their recently published residential IPD (Investment Property Databank) report fully supports my own and Inspired’s views.

Aside from linking to the report here and the multiple award winning IPD here I thought I’d just share a few of the highlights with you:

“The residential total return index has experienced real [after inflation] growth of 86% [in the 9 years] to December 2009, compared to 33% in all commercial property. This equates to 7.2% per year in residential against 3.21% per year for commercial. The real capital growth in the residential index is the same to the total return in the all commercial property index. The residential income return on top of the capital therefore represents a real out-performance “bonus”.”

“Over fifty years real house prices have risen by 274% compared to a -55% fall in real commercial property value. This represents long run annual residential value increase of inflation plus 3.3% compared to inflation minus 1.2% per year for commercial property.”

“Residential has represented the best real return to a December 2000 investment [against equities, bonds and commercial property] at every stage throughout the previous 9 years.”

“The annualised rental growth over the 9 year period was 2.23% for residential compared to just 0.45% for commercial.”

“Residential market let investment has consistently rewarded investors with greater returns than commercial property and other asset classes since 2000 despite lower income returns.”

residential property vs other asset classes

“The long term real performance of residential represents a hedge against inflation and volatility whilst maintaining impressive performance relative to other sectors.”

Property Risk Reward Spectrum

“The fall from peak to trough is smaller in the residential market cycles.”
Source IPD Residential Index 13/04/2010, The Strength of Residential as a long term Investment

As you’ll know if you’ve ever met me, I’ve long been an outspoken advocate of UK residential property investment – especially in London.  Discovering this report (as well as Jack’s arrival, of course) has made my 2010 !!

If you’d like to discuss the property opportunities we can offer, would like to raise finance for an amazing site, or you’ve discovered a distressed scheme or portfolio that might interest one of our funds or clients, we’re always keen to hear from you.

I’m also collecting high tech baby accessories and bargains/donations are welcome – particularly if you can offer me a great deal on one of these little beasts !

Awesome High-Chairs

By Tim Watts,

Tim Watts

Rising student numbers, consistent annual rental growth and an ever increasing appetite from institutions all bodes well for strong performance in this sector but is it really that easy?  Past experience has taught me that when someone tells me it’s easy they have either been exceptionally lucky or really don’t know what they are talking about and are completely fee driven. The private development of student accommodation is a relatively new phenomenon and would appear to provide an excellent investment opportunity which is particularly resilient in more challenging economic times.

forecasts look good

However, universities are starting to slash places as the government funding squeeze starts to take effect. You like me probably thought that education and the Health Service were not forming part of future government’s reductions in spending plans. I wonder what part of the Health Service in due course the government feel is not part of the Health Service! It should also be remembered that this is only the beginning of far greater cuts that will be necessary in order to help reduce the UK’s public borrowing deficit.  So perhaps those successful in investing in this sector will need to undertake a stricter due diligence process before proceeding to the acquisition stage.

For me any acquisition has to tick the following four boxes before further consideration would be given to the proposition:

• The quality of the university
• Location of accommodation to the university and social environment
• International student population
• Supply and quality of existing and anticipated accommodation

These four key considerations should not be considered independently of each other and as this investment sector changes and develops so does the weighting that one should attribute to these four considerations. For example the supply and quality of existing accommodation would not have been an issue in almost every University town less than ten years ago. Now, however, in certain areas not all student accommodation will let, and the requirements of what the student is expecting continue to evolve.

overseas student

In my view the trend in overseas students for a particular university town should now be the key driver. If one takes the view that there is likely to be a continued squeeze on places it is important to remember that there are no restrictions on the number of international students. Whilst there is a cap on British undergraduate fees of £3,225 there is no cap on fees for those outside the European Union. Quite why the British tax payer is subsidising members of the European Union when British applicants are being turned away is not a topic for discussion here but I am sure one for the Daily Mail.

By focusing on this trend and being alert to the requirements of accommodation for the international student there is every reason to remain optimistic that the student investment sector should continue to perform well. For example, with Government forecasts indicating a further 125,000 international students over the next decade it is easy to see why London continues to offer investment opportunities. However one final word of caution. Just as the bubble burst in the commercial market partly due to the weight of money, there is a point, as with all investment decisions, where the answer should be “no” rather than the ridiculous get out clause of acquisition due to the need to balance a portfolio.

By Martin Skinner

A love affair – my story
I’ve been a passionate advocate of residential property investment particularly in London since I bought my first investment property out in the far reaches of London’s Docklands in 2002.  My love affair with residential began much earlier though…

I spent my formative years from 7-18 growing up in a big house on 3/4 of an acre of land in East Sussex.  My parents had settled there after many years of travelling and teaching in far off places like Uganda & the Solomon Islands, where I was born.  It wasn’t a particularly expensive house or in a particularly expensive area but it had a big garden, big trees, a gravel driveway and a garage big enough to play table-tennis & snooker in.  And I had a bigger bedroom than I remember any of my friends having – so they often came to my place – I loved it !  An Englishman’s home is his castle and I didn’t have to pay any rent…

…  until I moved up to London for university in 1998 and had to pay rent.  From 11 years old onwards I’d always worked to earn extra money to pay for extra toys – first skateboards, then bikes and finally sports cars – and I really didn’t enjoy having to throw a whole £300 a month away on something I’d always enjoyed for free.  Have you any idea how much faster I could make my car go for £3,600 (12 months’ rent)??  My parents didn’t seem to share my pain.  “I could buy a 3-bed ex-council flat, rent out the spare rooms to friends and live rent free if only you’d guarantee the mortgage”  I explained. Mum would have helped but my dad, who was a tough old sod from an army background, threatened to divorce her and move out if she took such a huge risk on me.  And then my car got stolen.

Anyway, as soon as I had the salary to support it without a parental guarantee I bought my first 3-bedroom house.  I paid £220,000 for it in March 2002; quickly knocked the kitchen into the dining room to free up an extra bedroom and let the 3 rooms out.  I received enough rental income to pay the mortgage, all the bills and still left me with £500 a month (and my own bedroom).  I then re-mortgaged it for £70,000 extra just six months later.  It would have taken me at least 10 years to save up that much money from my £34,000 a year job and I was convinced; this was how I would earn my money.

Institutions – still flirting
Meanwhile institutional investors rarely share the passion I have for the sector and consistently struggle to get their products beyond first base.  A number of large UK institutions announced their intentions to invest last year but almost a year on they still haven’t got them off the ground.  The main reasons appear to be:

• More active management required
• The recent rebound in market values
• Lower net yields compared with commercial
• Short-term tenancies (longer-dated income is preferred)
• Reluctance from banks to release large volumes of discounted stock

In addition to this many financial advisors struggle to differentiate between an investor (or client)’s home and their investment portfolio and therefore look to diversify into commercial property over residential alternatives.

These are not insurmountable challenges however and some including Invista Real Estate and Inspired Asset Management (who I advise) with their Urban Share Fund are succeeding with their products.

Why not just stick with commercial property?
Assets are generally valued based on multiple of their current and future income (in this case net rental yields).  And rents are still under downward pressure for offices, industrial and in particular retail where sheer weight of money meant more space was developed.  Combined with changing consumer and occupier behaviour (online shopping for example) the recovery in commercial property is likely to be much more muted.

In residential meanwhile there was a housing supply shortage/crisis before the downturn even began.  The demand pressure is building and the supply-side is hamstrung.  National house builders had to shrink their businesses to survive the recession and could take 5 years to get back to where they were in 2007 and smaller developers cannot raise the development finance they need to produce new stock.

Hybrid variants of residential including affordable housing and student accommodation are attracting more attention from investment funds but even they are both still in short supply; particularly in London where according to Savills student numbers are growing at 15 times the rate of new supply.  London is also where waiting lists for council housing have reached such extreme levels that dedicated workforces are being recruited to persuade those on the lists to look to the private sector for help.  Private landlords of course prefer to steer well clear of tenants on housing benefit after suffering huge losses when the government diverted payments from landlords to tenants who then frequently failed to pass them on.

Anecdotal evidence from West London agents suggests rents are increasing again and at quite a pace.  Knight Frank is forecasting house price increases of 34% in London over the next 5 years.  The Centre for Economics and Business Research (CEBR) expects prices in the UK as a whole to rise by 20% over the next 3 years as banks step up lending and interest rates remain low.

Historically residential property has proven to be a relatively safe asset class hence the expression ‘as safe as houses’ and:

• outperformed other asset classes
• offered higher income yields than bonds
• offered an effective hedge against inflation

Whether the powerful few step up their investment programmes in Residential Property or not it’s clear that in the years ahead many students and young graduates are going to have a much harder time finding accommodation they can afford to rent let alone buy.

If you would like to learn more and/or discuss some of the pressing issues faced by our next generation please book your tickets for our University Challenge event.  We will be hosting a discussion involving fund managers, property managers and students at the May Fair Hotel in London from 6.30pm on Thursday the 11th February.  The last few tickets are available now on http://inspired.eventbrite.com.

By Tim Watts

Tim Watts

As a new year starts, out will come forecasts on what the “experts” think will happen to residential prices this year. The question is how accurate are they?  I would strongly recommend a degree of caution on making investment decisions in this sector based on these forecasts.

Let us take a look at some of the forecasts made at the beginning of last year:

• The Royal Institution of Chartered Surveyors, Simon Rubinsohn  -10 to -15%
• Deutsche Bank, George Buckley  -15%
• Capital Economics, Seema Shah -25%
• Lucian Cook Savills -5%
• And finally one of the most accurate that I could find was from Trevor Abrahmsohn at Glentree International at -2%.

Investing in the residential investment sector as opposed to residential development is in my view for the mid to long term investor. It would seem sensible to consider what the “experts” are saying before deciding whether to invest but is that really the case?

I remember sitting round a table as a consultant to Lloyds Banking Group just after the takeover of HBOS in January last year when the question was asked as to where I thought prices would be by the end of 2009.  Yes, I hear you saying, it’s easy to forecast after the event but genuinely my view was that the range would be between -2 and +2% and that it was more likely to be in positive territory. The room fell into silence and only those that knew me well wanted to understand  why I was in such an optimistic mood. Nationwide have recently reported that for 2009 the annual  average house price growth was 5.9%.

House prices rising, but the forecasts said rain?

Of course there have been wide variations with some properties showing falls of as much as fifty percent. The reasons for this I shall cover in my next article on the essentials of residential investment.

It still amazes me how most institutions do not have an allocation within their pension funds for residential even though the track record of residential has consistently outperformed other property asset classes over almost any time frame. The individual investor knows only too well how residential has performed as part of a long term investment strategy. Residential is however capital intensive which is why at Inspired we shall have a strong focus on providing residential funds which enable investors with a minimum of £25,000 the opportunity to invest.

UK residential property - long term outperformance

Interestingly in the Sunday Times Money supplement this week there is an article titled “ shares beat property in profits race”. This headline took me somewhat by surprise as unfortunately I did listen to some experts who pursuaded me to invest in shares as well as residential. Whilst I think looking back too far in time as a measure for future performance is also a dangerous route to go down it stated that investing in a house since 1959 showed a rise of 273% or an average annual real return of 2.7% according to the Halifax. Shares, wait for it, have returned 1180% over the past fifty years giving an average real return of 5.2%. This I simply couldn’t believe until I read the small print. This figure included dividends without which the figure would be only 86% or 1.2% in real terms. In other words half that of residential. What this article failed to consider was the fact that residential can and normally is let and generally will provide similar initial income returns to that achieved through a dividend.

Listen - the facts speak for themselves !

So in conclusion I would suggest that the facts speak for themselves no matter what the headlines say. Don’t put off your weekend away due to the weather forecast nor take too much notice of residential forecasts if you are investing for the long term. Residential has continally outperformed all other property asset classes and should definitely form at least part of a balanced investment strategy. Have you been reading this to see what my forecast is for this year? It will be announced and discussed at the next Inspired event set for the 11th February, see our event site for further details.

“Every now and then you come across an event which really takes you by surprise because it’s fresh, exciting and different. Inspired Events really hit the spot. Great content, great format.”

Philip Calvert, Founder of IFA Life and Social Media Speaker

Our next event is on 11th February 2010 at The May Fair Hotel, W1

University Challenge: an education in student accommodation.

• Discover an exceptional investment opportunity

• Find out how to maximise the hidden potential

• Learn how to tailor your approach to satisfy demand

• Featuring guest speaker Rob Weaver, Head of Residential at Invista

See the highlights of our last event at www.inspiredassets.co.uk/events

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1. Leave a comment on this post starting with the words ” Student and young professional housing could make an inspired investment because… ”

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Terms

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6. You must be 18 or over to enter. All rules are subject to change without notice.

By Martin Skinner

Right the snow’s over everybody and it’s time to get this show back on the road!

Unfortunately it’s likely to be quite a long and bumpy road so I thought I’d kick the years blog off with a priority Top 3.  Hopefully it’ll help keep things focussed on the journey towards financial stability.

The road ahead

Priority numbers 1 & 2 are “Location, Location …”
I did have a bunch of great articles with lots of lovely tables and charts demonstrating the likely future variances in house price inflation between key regions however partly as a result of being pleasantly distracted by all the new social networking sites and events (and of course the snow) I’ve managed to misplace them.  Still with traditional forecasting having been all but discredited perhaps we shouldn’t rely too much on them anyway.  Therefore I’ll just share my opinions with you and you can comment if you agree/disagree.  If you happen to have the tables/charts to hand then please feel free to post them too.

It seems certain to me that the North/South divide is going to widen in the years ahead as 1) investors prioritise properties in the safest, scarcest locations and 2) the [new] government  is forced to reign in its spending.

Northern regions are more reliant on the state than southern regions and they will suffer more as a result.  Demographics were forgotten somewhat during the boom and financial engineering was often prioritised over fundamental property investment criteria like location and future supply & demand.  Sadly many investors found that agents, property clubs and developers forecasts for rental income and re-sale values evaporated and have been left sitting on flats that in some cases could take a decade or more to get back to where they were estimated to be at their peak.  And that’s assuming the local populace doesn’t move to the south in search of better pay (or just any old job).  The same can of course be said for many foreign destinations – let’s not get into Spain or Dubai here.

The good news for those that have holdings there is that Prime West London is pretty much back where it was in 2007.  Cash rich investors have continued to fight over flats and houses in Mayfair, Knightsbridge and Notting Hill throughout the turmoil.  Once again the old adage Location, Location, Location has rung true and I believe it will keep ringing loudly for at least 5 years.  Investing in the best location you can afford will continue to pay dividends.

Central London

Priority number 3 is Yield
Many buy-to-let investors (and others) have managed to hang on to their portfolios despite significant negative equity because interest rates have been reduced so dramatically.  In most cases residential property investors have in fact benefitted from significant improvements in their monthly margins as rents have only dipped about 15% overall – as compared with about 50% on commercial property – and they’re now beginning to drag themselves back up.

This means income arbitrage is back on the menu.  If you can only get 0.5% interest from the Bank of England or a c4% dividend yield on equities then property starts to interesting above that level.

But what about rising interest rates for those looking to use leverage or with debt already in place?  The debate will continue to rage on this in the months and years ahead I’m sure (hasn’t it always?) however it’s clear that they will have to rise at some point and it therefore makes sense to build in some margin for error on the yield.  This can be a little difficult if you’re borrowing 50% or more and following the golden location, location, rules because yields on Prime Central London properties can be as low as 3 or 4% gross.

So my tip, and I doubt the big fund managers will like this one, is to stay prime and consider more management intensive residential uses such as student accommodation, young professional accommodation and short-let hostels etc.  If you were offered the choice between a long lease on a bank in a regional city centre at a yield of 5% or a flat with a 9.5% gross yield (7% net) in Central London what would you choose?

Urban Share bedroom

If you fancy learning more about student & young professional accommodation why not come along to our event on the 11th February where we’ll reveal many of the secrets to successfully investing?

Andrew Goodwin senior economic advisor to the Ernst & Young Item Club wrote the best article I’ve read this week (in Property Week).

By Martin Skinner

While researching and considering this blog I’ve been travelling to Poland with my family for Xmas.  My family consists of my fiancé Magdalena (and bump), my mum Heather, mum’s partner Bruce and myself.  We’ve just flown into a snow covered Poznan for our first Xmas in Poland with Magda’s family and my mind has naturally drifted towards Christmassy thoughts.

Santa dropping by

Like so many families around the world we’ve had a very tough year.  With such hard times so fresh in our memories and with such uncertainty ahead important questions are begging for answers.  Will the families get on well and have a great Xmas?  Will we have a better year next year?  And does Santa Claus really exist?

Clearly these are big questions and the answers will depend on your own beliefs and circumstances.  I’ll let you know how we get on in future blogs.  For now I’ll share a few of my beliefs and relate them to my specialist subject of investment and specifically investment in London Residential Property.

1. Fog is inevitable

I’ve had the good fortune to spend valuable time with some extraordinary leaders in both finance and property.  One great snippet I heard from a hedge fund manager once was ‘the world is full of fog; I’ve developed the vision to see beyond the fog’.

Fog

In reality even his vision couldn’t prepare him for the events of the last 2 years.  Despite this I do believe it’s important to come to terms with the fog and uncertainty we are suddenly so acutely aware of – and carry on with our lives.  Psychologically it’s probably the most important step we can all take on the road to recovery.

An uncertain environment offers great opportunities particularly when broadly recovering.  In this environment Inspired Asset Management (an investment business I advise) is fortunate to be fresh, new and without the legacy issues that will continue to hamper many of its competitors for years to come.  The first fund Inspired is advising on will be buying throughout 2010 and deals are likely to be considerably better than if future price rises were “assured”.

2. Fundamentals matter

Now more than ever when investing it helps to:

• deliver products and services people need or want
• target undersupplied markets
• focus on very specific known locations
• buy very selectively – ‘Alpha’ is a word used in financial circles to describe this approach to cherry picking assets
• generate plenty of surplus cash flow

We received confirmation just yesterday that the first fund we’ve helped to raise with Inspired has achieved its first close and will be able to make the first purchases – a great way to start Christmas !

3. Think long term

Short-term sentiment matters (perception is often reality) however good assets and businesses if they are well funded and in demand will generally normalise over time.  If they can be “farmed” effectively to generate plenty of cash flow they should do well without suffering from the risks inherent in short-term speculation.

Property in particular is an illiquid asset class and should generally be approached accordingly.  Five years should really be the minimum period to plan to hold an investment – of course if someone offers to buy at a huge premium then early sales should be considered.

London

Instead of always trying to second guess short-term movements in markets and assets I believe it’s sensible to look at where supply and demand forecasts are likely to leave gaps in the medium term and seek to fill one of those gaps.

Inspired’s partner Urban Share for example achieves 95%+ occupancy rates and generates 9%+ rental yields on residential properties in Central London and with population growth forecast to continue apace while construction supply is likely to take five years or more to recover we see a gap.

4. Luck favours the bold

Putting time in to research and test your market thoroughly is generally time very well spent and I’m a firm believer in planning to succeed.  It’s important to also bear in mind that you also have to be in it to win it.  Many procrastinate from the sidelines while most others choose to follow the herd (too late).

Those with the guts to drive forward into the fog with their headlights on will often attract others to their cause as they prove their concept.  At Inspired we hope a real passion for Social Media/Networking, collaborating and engaging with our clients & peers along with establishing a successful investment track record will help us to achieve this.

5. Network and make yourself available

We’ve embraced social networking and have made ourselves available through sites like Twitter, LinkedIn, Wordpress, Ecademy, Facebook and YouTube and encourage others to do the same.

In the finance & property sectors leaders like Philip Calvert (IFA Life), Robert Gardner (Mallow Street & Redington), JC Goldstein (CREOpoint), Nick Tadd & Vanessa Warwick (Property Tribes and 4 Walls & a Ceiling) and Jaime Steele (North Financial) are true visionaries and if you don’t follow them or participate in their networks yet (10,000+ contacts) I highly recommend you do.

Doors have already begun to open for us and we’ve met some extremely innovative and passionate individuals and groups.  If you would like to know more about us or can add value to our network perhaps come along to one of our networking events.  Our next one is on the 11th February in Mayfair and tickets are just £49.95 each.  Drinks sponsors are also welcomed.

Doors Opening

And finally please have a very Merry Xmas and a Happy New Year

I suspect I’m not the only one pondering these subjects and while I have initially shared my thoughts with you I would be extremely keen to hear what you think too – please feel free to comment or indeed describe your own Xmas [belief/wish] list.

Now back to the festivities and the family.

Merry Xmas from Martin, Magda, Inspired & Stepnowski - !

This article from the Sunday Times summed up the year very well.  Some of my take-outs were:

• Deflation averted – good news
• Temporary inflation boost over Xmas & in the New Year – better than deflation
• Global growth estimated at 3% in 2010 by the IMF
• V-shaped recovery likely

By David Smith

We have all lived through a remarkable time. As we approach the end of 2009, we are also preparing to say goodbye to a year that will go down as the worst for the global economy and world trade since the second world war.

It has also been, by a margin, the worst year for the UK economy since the Depression. Even if the figures are eventually revised up, as I expect them to be, that record will not be affected. On the Treasury’s estimate of a 4.75% slump in gross domestic product this year, that is more than twice the decline recorded in the previous worst year, 1980.

For the global economy, the International Monetary Fund estimates that world GDP has fallen 1.1% this year. That does not sound much but is the first drop recorded on the IMF’s database, which stretches back to 1970. Before that we had the post-war “golden age” of the 1950s and 1960s.

Advanced economies have seen a GDP fall of 3.4% this year, the IMF says. World trade has slipped before, falling 2.7% in 1975 and 0.9% in 1983, but this year’s fall, 12%, takes us into new territory.

It may seem odd then to say that things could have been a lot worse. Part of my mission is to take the “dismal” out of the dismal science of economics.

The first thing to say is that the worst of the downturn happened quite a long time ago. The period between October 2008 and April 2009 was when global growth, world trade and the UK economy “fell off a cliff”. Economies then stabilised and started on a modest path of recovery. That is true of the world economy and, notwithstanding the official GDP figures, of Britain.

The improved economic tone, and the rise in markets, has happened as we have come out of that sickening dive. Anything could have happened to the banking system, from nationalisation of every bank to the cash machines running out. Instead, as the Bank of England’s financial stability report pointed out on Friday, the banks are a long way from being back to normal but an even worse crisis was averted, for which credit is due to the authorities.

In March, the world was looking at “mark-to-market” financial losses of £24.3 trillion. The recovery in markets has cut that to £6.3 trillion. House prices, expected to fall by up to 25% at the start of the year, will end with a modest rise. Sterling rose over the course of 2009 too.

There is other good news. Last week saw a flurry of concern about inflation, as headline consumer price inflation rose from 1.5% to 1.9% and retail price inflation turned positive (by 0.3%). There will be further rises over the next two to three months, before inflation comes down again.

Why is that good news? The dangers of prolonged deflation were exaggerated but the risk was there and has been averted. Had this crisis been followed by a prolonged period of deflation, comparisons with the 1930s might indeed have been justified. As it is, I would much rather have Britain’s problems than those of Japan.

Best of all is the job market. Employers and employees have shown huge flexibility to get through this recession. Wage freezes, cuts and shorter working weeks mean employment has fallen by only a third of what it was reasonable to expect.

The government deserves a little credit for its labour-market policies, including job and training guarantees. Aggressively expansionary monetary policy and modestly expansionary fiscal policy have helped.

Last week brought news of the first drop in the claimant unemployment count since February last year. The wider Labour Force Survey measure held below 2.5m for the fourth month running, against high-profile predictions of something like armageddon in the job market.

One of the worst labour-market forecasters, interestingly, has been Danny Blanchflower, formerly of the Bank of England’s monetary policy committee, who was appointed to the MPC for his labourmarket expertise.

In January he predicted that unemployment would rise to 3m, or worse, over the following 12 months. In May, even when it was clear from the data that the claimant count was rising much more slowly than expected and that the wider jobless measure could be expected to follow suit, he predicted monthly unemployment rises of 100,000 for the rest of the year. Even as lower numbers came through, he insisted it was the lull before the storm.

It may still be, though it would be an odd recovery that saw job losses accelerate. Unemployment probably has further to rise and will be slow to fall. The Treasury expects the jobless total in 2014 to be some 50% above its pre-recession level.

Only if there is a “double-dip” in the economy, however, would you expect a big unemployment surge. The job-market numbers suggest the economy has been recovering for some months. The risk of that recovery running into a roadblock will be one of the key issues for next year.

There will be more to be said on this but let me just leave you with a couple of quick observations. We are clearly not yet out of the woods. The Bank, in its report, noted renewed worries about the vulnerability of the financial system to sovereign risk, because of Dubai and Greece. Many high-deficit countries, including the UK, have yet to announce the “credible fiscal consolidation plans” the Bank thinks necessary.

The banking system has to wean itself off emergency financial support and needs to get on with it. The Old Lady has taken the banks to her bosom but wants them to stand on their own two feet.

Banks should be doing more to help themselves. By reducing pay bills by 10% and cutting dividend payments by a third, they could rebuild capital by £70 billion over five years. They face big challenges, of big losses on commercial property and rolling over funding in the markets, though the Bank sees these as bumps in the road rather than roadblocks.

The debate about whether banks are lending enough to businesses — or whether the demand for loans has just shrunk — will continue. The return to normal interest rates (which the Bank thinks is 5%) will pose problems, though it will not happen over the next 12 months.

Having said all this, it is very difficult for Britain not to have a recovery if the world economy is growing. The UK is an open economy and 3% global growth next year, which is what the IMF expects, will lift Britain. Most recoveries are V-shaped and the strong likelihood is that this one will be, though there are any number of alternative shapes, including W, square root and saxophone, to debate.

But as we look forward to those debates and say farewell to a fascinating year, probably never to be repeated, we can breathe a sigh of relief that it was not even worse.

PS: We may be getting close to wrapping up 2009 but the excitement is not yet over. Next week will be my annual forecasting league table, which will make some people’s Christmases and ruin a few others. This year’s competition, as much a part of the seasonal ritual as mulled wine or carols from King’s, has an added twist. Readers were invited to submit their own forecasts and some will have done well in comparison with the professionals. There will be prizes.

We are in an online age but the forecasting league table is best viewed on good old-fashioned newsprint. So make sure to get a copy of the paper, even if it means trudging through shoulder-high snowdrifts. Until then, I offer you my best wishes for Christmas. (David Smith, The Sunday Times) http://business.timesonline.co.uk/tol/business/columnists/article6962721.ece

By Doug Morrison

Property Week and Unite’s student accommodation conference highlights supply-demand imbalance

Last month Unite Group, the UK’s biggest developer and manager of student accommodation, raised £21.5m from the sale and leaseback of a 395-bed block in Bristol to M&G Secured Property Income Fund.

The sale price reflected a net initial yield of 6.07%. It also reflected the growing institutional interest in student accommodation as an asset class in its own right and not just the preserve of specialist investors.

Just two months earlier, a 6.75% net initial yield was achieved in Bournemouth when another mainstream fund, Aberdeen Property Investors, paid Cordea Savills Student Hall Fund £20.1m for a 519-room block, as revealed by Property Week (residential, 04.09.09).

This rapid yield shift in student accommodation has caused a stir in investor circles and partly explains the bumper turnout last month in London for Property Week’s second annual student accommodation conference, hosted with Unite.

As Knight Frank partner James Pullan told the 350 delegates — three times last year’s attendance — investment in the sector has reached “critical momentum” following M&G’s Bristol buy.

Much of the investor appetite comes down to supply and demand. Student numbers are growing against a shortage of accommodation — and the purpose-built halls can be a selling point as academically similar universities compete for the first-year intake and cash-rich overseas students in particular.

Pullan said the imbalance has resulted in near 100% occupancies and average rental growth of 5% a year over the last six years, compared with 0.6% in commercial property.

“A block 200 metres in the wrong direction can be a non-starter”

Dennis Hopper, Leeds University

Rental growth has topped 10% for 2009 in some towns, although Pullan echoed a widespread conference sentiment that this is unsustainable.

A slowdown in rental growth — 3%-5% was the consensus for the coming year — suggests a pause for breath as the market matures and tough economic conditions force students — or their parents — to seek value for money.

Pullan also referred to the “indigestion” endured by cities such as Sheffield, where 3,254 student rooms were completed in one year alone.

Even in Leeds, which is popular with investors and students alike, there are pockets of oversupply.

Dennis Hopper, Leeds University’s facilities management director, told delegates how a block “200 metres in the wrong direction” can be a non-starter for 80% of students who want to live on or near campus. “It’s that sensitive,” he said.

Just like other property sectors, it seems, location counts for everything with the tenants. (Doug Morrison, Property Week) http://www.propertyweek.com/story.asp?sectioncode=530&storycode=3155090