Unless you believe equities are greatly over-valued, therefore, we should assume the long-run returns on housing will continue to lag behind those on equities.
This suggests we may be over investing in housing – because there are compelling reasons to believe table one under-estimates the riskiness of housing.

We have defined risk as the standard deviation of quarterly returns. On this measure, equities are riskier than houses, because they fall sharply when they do fall.

However, this ignores the fact that small falls in house prices often lead to further falls, with the result that there can be large long-term losses on housing.

The average price of a London house is no higher in real terms now than it was in the spring of 1989. That means the average London home-owner has been sitting on losses for 11 years. That’s as long as the equity bear market of the 1970s.

There is another sense in which housing is riskier than table one’s figures suggest. These show the volatility of house prices across the whole region. But prices in smaller areas are more volatile.

Figures from the Land Registry show that, sine 1996, prices in the London boroughs of Kensington or Camden have been twice as volatile as London prices generally. And prices on Merseyside have been almost twice as volatile as prices in the north-west generally. Prices of some particular houses are even more volatile than this – at last year’s anecdotes of houses in Salford changing hands for £200 testify.
There is another reason why housing may be a worse investment than the figures suggests, at least for working people. We have assumed returns on human capital are simply those of workers in general. But this is not true for any given individual. There are two big differences.

Your human capital is more volatile than aggregate human capital – because your salary and bonuses are more erratic and because there is more risk of you losing your job than of all workers losing their jobs. This means you are exposed to more risk. A natural response to this is to hold more safe assets and fewer risky ones. This raises the attractions of gilts or cash relative to houses.

Your human capital could well have a high correlation with your house price. A recession in investment banking for example, would almost certainly cause house prices in Docklands or Chelsea to fall. Investment bankers would therefore lose twice over – once on house prices and once on human capital. Such high correlations with human capital make housing a riskier investment than the figures in the box would suggest.

We do it without thinking. As soon as we can, we take out as big a mortgage as we can afford – and sometimes bigger – and buy the most expensive house we can, and who can blame us? For generations, we have been brought up to believe that bricks and mortar are the best investment of all.

But this is not true. If it is high returns you want, history suggests equities are a better investment than housing, except in times of high inflation. And if it is security you want, cash or gilts are better.

For these reasons, anyone who wants to maximise returns for a given level of risk should invest surprising little in housing. The figures (see Why we overinvest in housing/ on page 30) suggest many working people should hold less than half their non-human wealth in housing. The rest should be in a mix of cash, gilts and equities, depending on your attitude to risk. Many of us own far more housing than this.

Before condemning ourselves as hopelessly irrational, however, we should take a closer look at this question – because it may be that the figures in table one, on which the calculations in the box are based, are misleading.

Table 1: Risk and return on housing 1976-2000

Quarterly Return Risk

FTSE All-Share 4.77 8.43
Non-UK equities 3.95 8.71
Gilts 3.05 4.45
All houses 2.07 2.78
London houses 2.50 3.62
Scottish houses 1.71 2.65

Source: Datastream, Morgan Stanley Capital International and Nationwide Building Society.

One reason for thinking so is that we could expect bigger rises in house prices, relative to equities, than we have seen in the past.

This, however, is unlikely. Of course, there are some reasons for optimism. For one thing, houses are quite affordable outside London. Yolande Barnes of F.D.P. Savills estimates that mortgage payments now account for just 16 percent of households’ disposable incomes compared to over 40 percent at their peak in 1990. And there is also a chronic shortage of supply. The housing stock is growing by barely 1 percent a year. Ms Barnes estimates that at this rate new houses will have to last for 4,000 years.

On the other hand, says Roger Bootle of Capital Economics, the possibility that low inflation is here to stay could reduce the demand for housing as a protection against inflation. And, adds Ms Barnes, some of the rise in prices in the south-east in the 1980s and 1990s was driven by a one-off event – the growth of London as an international financial centre. That warns how past houses price gains may not be repeated.

Indirect Effects

The Euro should lead to low and fairly stable short and long-term interest rates and low inflation, which, in the long term, should aid economic growth and investment and hence occupational demand for property in 'Euroland'. In the short term, the European Central Bank (ECB) may impose higher interest rates than ideal, to ensure low inflation is secured (as this is in effect its main objective). This could result in an overvalued strong currency, weaker external trade, higher unemployment and lower economic growth in Euroland. For many countries, whose trade is primarily within Euroland, this may be less significant than for the UK, which has higher trade to countries outside Europe. In the short term, being outside Euroland, the UK could benefit from a devaluation of sterling, giving a boost to exports and hence manufacturers. New, left of centre governments whose right of centre predecessors, whose right of centre predecessors signed up to the Maastricht treaty, may now try and modify the treaty so that interest rates take greater account of economic growth and employment prospects as well as inflation (as occurs in the USA). This may lead (initially at least) to higher economic growth, lower unemployment and higher inflation with obvious knock-on effects for property.

The Euro should precipitate greater internal cross border trade within Euroland (due to currency transparency) and an overall net increase in economic activity. This in turn will encourage company mergers, to reap economies of scale, and ensure greater competition. Companies will become more footloose and will favour lower wages, high skill, high productivity and low regulation countries. The UK should benefit overall if it joins, but not if it remains outside the Euro in the long term. The creation of Euro has advertised to the world the importance and size of Europe as one economy and market. It has a population slightly larger (about 280million), and an economy slightly smaller, than the USA. If and when the UK, Denmark, Sweden and Greece join, it will be even larger. This will encourage inward investment so that overseas companies can service the large market more effectively. The UK should benefit but not if it stays out of the Euro in the long term.

The 'one size fits all' interest rate cannot reflect the economic situation in each member country. If and when the UK is part of the Euro, this may cause a more pronounced economic cycle in the UK, particularly if our cycle is out of phase with the core of Europe (as it is now) and particularly as we are less integrated (in terms of trade) with non-EU countries. In the longer term, we should become more integrated and this will be less of a problem.

Specific Property Effects

General

Different legal systems, tax structures and leasing arrangements will maintain differences between the property markets in Euroland countries despite the Euro. Although greater tax and fiscal harmonisation is inevitable; this will be some years away. A larger more transparent market will add to pressure for shorter leases in the UK and more consistency between countries in Europe.

Industrial

Greater competition and larger companies (through mergers etc.) should mean more rational decision making over locations. The industrial market will be more affected by the Euro than other property sectors. A greater divergence between locations will become evident, with relocation from high to low wage areas, as has happened in Germany over the last decade. Infrastructure will play a more important role in location decisions. This will favour the South East as it is more accessible to the European heartland.

Offices

Greater competition and larger companies will increase rationalisation of property, with an emphasis on efficiency. Further growth in back office/call centres is likely, but not necessary in the UK. Provincial UK office centres could be adversely affected. Frankfurt (home of the ECB) will increase its threat to London as a financial centre, especially if the UK remains outside the Euro in the long term. However because of London's international dominance, this is unlikely to be a serious problem if we join the Euro within the next few years.

Retail

This is likely to be the least affected sector. As fiscal policy will be the sole lever to balance the economy, once interest rates are no longer set domestically. There could be greater volatility in tax rates and hence consumer spending. However, this should be counterbalanced by less interest rate volatility so the overall net effect should be muted. A more transparent single market resulting from the Euro will make retail price differentiation between countries more difficult. This will affect the relatively high retail price for some products in UK, reducing retailers' profits and hence exerting a downward pressure in rents, although this will be mitigated to some extend by increased sales.



Housing

Lower interest rates should benefit the UK housing market where variable rate loans are much more common (although becoming less so in recent years) than in the rest of Europe. More stable interest rates may mean more fixed rate loan.

A low inflation economy should also mean lower house price increases (as has generally occurred in the 1990s), with housing being viewed less as an investment. There would then be less incentive for purchasers to gear up to maximise capital gains, so reinforcing lower house and land price inflation.

Investment

A larger market with cross borders price transparency will increase cross border property investment in Euroland to achieve a more balanced portfolio profile. There should be a greater convergence of property yields between countries (as has already occurred in the 1990s). There is likely to be increasingly pressure for indirect property investment vehicles, benefiting countries, which have these vehicles. Low inflation, a more open market and greater transparency will mean property will not be bought as a hedge against inflation, Increased research, professionalism and effective management will occur.

Varying lease practices between countries will make the UK attractive for property investment. Good property data and property performance indices in the UK will also enhance the UK's appeal to property investors.

Tax harmonisation, if and when it occurs, is likely to mean higher taxes on UK property transactions. This will be a disincentive to liquidity and would adversely affect investment in UK property. Low inflation and low bond yields will favour over-rented properties, provided there are upward-only rent reviews.

The single European market and growth of larger companies will affect use, occupation and location of property and increase obsolescence. This will be reflected in investment yields.

Mehrdad Yousefi is Intermediary Sales Development Manager, Alliance and Leicester

In 1996, Savills predicted that mainstream average house prices would rise by 50% before the end of the year 2000. This forecast met with incredulity because the widespread belief at the time was that the boom-bust pattern of housing market cycles had disappeared. Savills felt differently because they had already seen central London and other prime markets take off with alacrity. History has told us that, where London leads, other markets usually follow. By this time last year however, we were beginning to doubt our own prognosis; suspecting that maybe we had seen the last of the boom-bust cycles as some economic commentators were predicting. We should have held fast to our original beliefs however. The slowdown of late 1998 was just a blip and mainstream markets are once again following where prime markets have led.

According to the Nationwide Building Society, average UK house prices are now 30% higher than they were in 1996. Real (inflation adjusted) house prices are still well below their 1988 peak. We are increasingly confident that at least 20% nominal growth will be added before the end of 2000. This will be due to a combination of high purchasing power and competition for scarce stock. We have already seen the impact of this combined phenomenon in prime markets throughout the UK. Since 1993, the best properties in prosperous places have seen growth of the same magnitude as between 1982 and 1987. This prime growth has also been more widespread than before so that more property in more places throughout Great Britain can now be described as prime than was the case in 1987. Service sector economic growth has increased demand for period properties, smart city dwellings and prosperous enclaves all around the country. Meanwhile, it should be noted, depressed areas nominated by manufacturing industry have not fared so well. Consequently, the 'average' house price conceals a wide range of experiences.

Price movements in the prime markets have engendered a combination of confidence and panic in secondary markets. Confidence that prices can rise and panic that they won't be available or affordable in a few months time. It is now the secondary property market that is having its heyday, just as it did in 1987-88. Agents in outer London boroughs and strong regional centres are reporting that demand at present far exceeds available supply. Once again, we are seeing the inelastic supply of housing result in localised mini-booms around the country. Some locations are benefiting from the 'next door neighbour effect'. This happens as frustrated buyers, unable to obtain and/or afford properties in prime locations are gentrifying adjoining neighbourhoods. Similarly, price growth on the upper parts of the housing market ladder has made the lower parts look relatively cheap so that they too have started to experience a knock-on growth in demand. Finally, the investment motive has returned to the market. In contrast to the 1980's, people are not necessarily putting excess wealth and gearing into their own home but are buying investment property to let to someone else. This is soaking up otherwise unpopular supply of cheaper properties such as the flats and small terraces that may have appealed to first time buyers in the 1980's.

Its easy to become a housing millionaire....if you buy in the right place, at the right time, at the right price and with your power drill at the ready.

Are you already a housing millionaire? You could be if you live in London or the South East. And you could become one, particularly if you live in areas such as the Cherwell area of Oxfordshire or a leafy London suburb like Richmond- subject to a few key ifs and buts.

The first "if" is whether or not you piled into the housing market on the right side of the 1989-90 property crash. People who did clocked up hefty gains before high interest rates and negative equity engulfed the market. And many of them took enormous risks to buy their houses. "We put everything into our first house. We managed to get a mortgage based on three-and-a-half times joint income, thanks to some dodgy mortgage broker. And perhaps because of that we are used to ploughing everything we earn into our house," says a London homeowner who has successfully climbed the housing ladder and is on the verge of becoming a housing millionaire.

"It is nerve-racking" says the same person, cheerfully. "The rebuilding costs for our present house are £200,000 to £300,000. Its value is twice that. But it is like a business where you have got all your money tied up in the brand. Its value is based on the market, so you don’t want any accidents. If the City moved to Frankfurt overnight then we would be in big trouble. But then so would everyone else."

The second "if" is whether you bought in the right place. Central properties in big cities have tended to enjoy big gains. But it has been the highly local factors that have kicked prices upstairs. A local authority with good reputation; a shift to converting inner city houses, once split into bedsits and flats, back into huge family homes; and proximity to good, often independent schools- all can work wonders for property values.

The "buts" are that becoming a housing millionaire can need as much luck as judgement and that big profits will usually require hard work on renovation or redesign- housing millionaires are often keen amateur builders.

Can history repeat itself? -

It still sounds all too tempting- houses are so much easier to understand than shares or unit trusts or individual savings accounts. And, unlike shares, you can live in houses. By and large though, the risks in buying property are greater than most investors believe. What is more, the returns can be unspectacular.

The average house price in 1989 was just over £70,000. Today it is around £86,000. Just to keep in line with general inflation, the average should have risen to almost £100,000. That's poor performance by anyone's standards. The same lesson applies now as in the 1980's- aspiring millionaires must buy in the right area.

Any mini boom now under way in house prices is merely redressing the balance of a spectacularly bad decade for residential property. House prices are indeed moving ahead strongly in certain areas- our graph shows how much London has outperformed the rest of the UK- but the risks, and therefore the potential rewards, of a boom have been considerably overstated.

Lets at least give the argument that a boom is about to happen some time. Mortgage rates are at their lowest level for 30 years, consumer confidence is on the upturn. Bradford & Bingley Building Society says that nationwide, five people are waiting to every new home coming on the market, and as many as 11 buyers are waiting per new home in the South East. FPD Savills analysis recently warned: "The implications of low-cost money could be similar to those lax monetary policies after 1988....we could be about to see the start of speculative activities in the housing market."

Economists worry that if the government really wants to prepare Britain for entry into the Euro, interest rates will have to fall even lower, bringing about a house price explosion. Peter Guttman, senior manager in NatWest Group's Market intelligence department admits: "In patches we are pretty near a boom. The market is remarkably strong given the point of the economic cycle." A boom might not be a good thing for people planning to be housing millionaires. Where there is a boom a bust will surely follow. Property is far from liquid investment, is subject to all the caprice of lots of variations in property markets, and already tie up far too much of the typical investors capital. It is pretty much impossible to hedge against these risks and they are substantial.

In 1988 mortgage rates were just 7.5%, their lowest level for 10 years. The abolition of double MIRAS (mortgage income relief at source)- making the relief on property instead of borrower- caused people to rush to beat the abolition deadlines. House prices rose 34% that year. By 1990 mortgage rates had risen to 15 per cent, and the "health warning"- that your home was at risk if you do not keep up repayments on a mortgage or other loan secured on it- introduced only the previous year, had become a reality for many.

Low interest rates, and the expectation that they might fall even further, create a similar opportunity to that of the 1980's. Yet potential for a widespread boom in residential property seems overstated and this more stable outlook can only be a good thing for most property owners. Consider the following.

- First, location, location, location. Circumstances differ widely across the country.

Property in places like Luton or Sutton in Surrey currently take less than a week to sell. But reports have been circulating about houses changing hands in pubs in the North-East for as little as £200. 10% of estate agents reported prices falling this spring. In particular, experts warn about generalising about trends in the property market on the back of media reports that display a fixation with London and the South-East. David Rhodes, research fellow in the Centre for Housing Policy at the University of York, warns: "People tend to generalise from London, and it doesn't really work. A quarter of all private rented property is in London, so it is a law unto itself".

- Longer-term trends are also at work. With stamp duty raised and the tax relief on interest payments removed, the tax privileges of owner-occupied property have sharply diminished. A recent paper by Andrew Oswald, professor of economics at the University of Warwick, says: "An economy's 'natural rate' of unemployment depends on the ease with which its citizens can move around to find jobs.....by making it expensive to change location, high levels of home ownership foster spatial mis-match between works' skills and the available jobs."

Across Europe, the countries that have had the fastest growth in home ownership have also suffered the strongest increase in unemployment rates. If the argument that "to reduce joblessness in Europe's nations......our continent should revive private renting and try to make the housing market function more smoothly" is correct, then home owners can presumably no longer count on government intervention to support the value of their property investments artificially.

- House buyers seem to have taken on board the fact that property is an unnatractive investment in today's low inflationary environment.

Previously, it made sense for investors to load up with as much debt as possible, knowing that the value of their mortgage repayments would be eroded as inflation rose. That situation no longer applies- with low inflation, anything not generating a yield (like owner-occupied property) goes up in value less quickly. Sue Anderson, head of external affairs at the Council of Mortgage Lenders (CML), says: "There does seem to be recognition that when you buy a house now it is not a one way ticket to capital gain. Everyone is aware of the attendant risks of repossession and negative equity."

Surveys undertaken for the CML show that although the proportion of young people wanting to be owner-occupiers in ten years time has remained broadly constant at around 80%, the number wanting to jump from rented accommodation in the next two years has dropped. Interestingly- or maybe just bizarrely- surveys suggest that most people want to own homes for personal reasons and as a means of self-fulfilment, rather than for investment purposes.

Underlying fundamentals are very different in the late 1990's from their state a decade earlier, with much less gearing up in the market. Housing remains eminently affordable. Savills reckons mortgage payments have now fallen to just 15% of the disposable income of the average household (compared with an historical average of 25%, and as much as 45% in 1989.)

The ratio of house prices to earnings is now somewhere around the 30 year average of 3.8. At the peak of the late 1980's it had leapt up to over 5. Unemployment is set to have a bigger affect later this year, making it unlikely that the market will carry on performing quite so strongly in the short term. House prices should grow faster over the medium term than earnings, but that growth should be sustainable.

Maybe, just maybe, we have come to the end of 'boom and bust'. And that makes the second route to property investment- investing in property to let- a much less speculative, and as a result more attractive proposition, even on a relatively small scale.

A decade ago just 7% of the population rented in the private sector- now the figure is already up to 11%. Changing social trends (short-term contract working, more single occupiers) and government moves to stimulate the labour market make a continued expansion likely. And the 1988 housing act made it much easier for landlords to charge market rent and gain repossession after a fixed-life tenancy. The attractions of buying to let are obvious, at 10 or 12% gross income alone the property should at least wash its face compared with a yield of 4.7% on longer dated gilts or 2.7% on equities, plus the possibility of the magical capital growth.

Most buy-to-let mortgage rates are pitched at around half a percentage point above the standard rate, with lenders willing to stump up about 75% of the value of the property.

Nice work if you can get it, but there are drawbacks. Anecdotal reports suggest that the rental market in certain parts of London is already beginning to be oversupplied. This would mean either that your property would remain void while you were still repaying the mortgage on it, or that the yield would plunge as you cut rents to attract tenants. FPD Savill reckons the typical gross-to-net yield reduction is 3 percentage points from the original gross initial yield. If you are borrowing at around 6%, the repayments could be tougher than you had first imagined.

Shares, gilts and bonds are still important and in a crisis, easier to sell than bricks and mortar. As our successful house investor says: "People keep saying that house prices are based on fundamentals. But they are not. It is all in the land value. Throwing all our money into our houses has worked for us. But maybe that is because I am the sort of sad bloke who really likes DIY." You have been warned.

Dr Ali Parsa, Reader in Planning and Property, in the Faculty of the Built Environment, is part of a team that conducts high-profile European-funded research programmes. He describes projects underway in Japan, South Korea, Iran and the United Arab Emirates.

Comparative research and planning helps us understand how other countries’ planning systems function and to see whether there are areas to which we can contribute advice or from which we might adapt for our uses. Dr Ali Parsa, Reader in Planning and Property, also Director of Property Research in the Faculty of the Built Environment on the Wandsworth Road campus, is passionately committed to this fascinating topic, which has brought South Bank significant respect and prestige in recent years. “Our particular strength lies in the historic mission of South Bank – in its provision of services, for the local population and for industry. That, together with our increased profile in research, has lead us to a high-ranking position amongst even the more established UK universities when we compete internationally. For example, in the last Research Assessment Exercise, we ranked equally with Cambridge University’s Department of Land Economy which says it all.”

Born in Iran, he came to the UK in 1977, as part of that generation who left Iran to seek higher education abroad. He studied first for both undergraduate and postgraduate degrees in this country and then took his PhD at Newcastle University, in the area of International Planning and Construction. Ali started his academic career at East London University (then Polytechnic) and joined South Bank University in 1991, as the Aubrey Orchard-Lisle Fellow. Since then he has been active in teaching International Property Studies and Comparative Planning on postgraduate level courses; he also teaches Research Methodology which is a cross faculty course; and supervises full and part time PhD students from the United Arab Emirates and Romania. Soon he is hoping to take on an Iranian PhD student, who is the nation’s first female mayor.

“What is exciting about the way South Bank University operates is that our research underpins our courses and helps us build on our strengths and connections with industry, both in the private and public sectors. The research carried out here is multi-disciplinary in nature but predominantly comparative. It concentrates on the institutional aspects of international real estate markets – looking not only at the ‘market’ angle but also at regulative structures, planning restrictions, and the role of the public/private sectors in the whole development process.

“These strengths have been recognised by the most respectable research funding bodies at national level. Private sector firms tend to come to us with international real estate projects – we don’t even need to look for them any more, they just ring us! This international recognition is evidenced by the type of projects that are commissioned from places as distant as the far east (Japan), the Middle east (Iran and the UAE) and Europe.”
Dr Parsa explains that he and his colleagues are currently engaged in high profile externally funded research programmes that are directly relevant to the work of international agencies such as the World Bank, United Nations Economic Commission for Europe and the EU. These programmes cover policy development and reform of the urban land and real estate markets in east central Europe and the newly independent states (NIS). “The importance and value of our work at South Bank University is recognised by the relevant government and professional organisations. For example, the Royal Institution of Chartered Surveyors (RICS) sponsored the launch of findings of the Economic and Social Research Council (ESRC) funded research on globalisation of real estate markets and urban development in central Europe at the 3rd Central European Initiative (CEI) Summit Economic Forum in Budapest, Hungary.” >Dr Parsa and his colleagues in the Faculty also launched the First Sharjah Urban Planning Symposium (SUPS) in 1998 which has become a major annual event devoted to discourse amongst the academic and professional community on development of strategic planning concepts in the Middle East. This conference is sponsored by the Government of Sharjah and has attracted leading international thinkers on urban issues. The next Symposium will be held in early April 2001 on the theme of Urban Growth Management under a federal System. The symposium will be sponsored by the RICS who recognise its role in the development of research in this vital region.

Sharjah, in the United Arab Emirates, is a typical example of the type of international focus of planning, with its strong environmental focus. Twenty years ago, Sharjah had a population of barely 100,000. Now the population has reached 500,000 and within the next ten years it is projected to be over 1 million.

“The conference in Sharjah provides the perfect focal point for debating contemporary urban development issues. Traditionally, much research into urban development in developing countries has concentrated on the negative impacts of urbanisation. But this city, and others in the regions, demonstrate how effective planning and management of urban development can contribute to a more dynamic and effective urban and national economic development.”

The globalisation of Central Europe

Ali Parsa, Stanley McGreal and Ramin Keivani

The aim of this research was to carry out a comparative study of the development and globalisation of real estate markets in Budapest, Prague and Warsaw and assess impact on urban development. Focus is placed on how different actors in the real estate markets interact with each other and operate within the social, economic and regulative structures. The methods underpinning the research are behavioural based incorporating an extensive programme of structured interviews, focus groups meetings and a wider postal survey of international investors and developers. The research was primarily concerned with markets in the capital cities but set within the context of wider influences in relation to each country. The findings of the research are summarised under seven main headings.

Diversification and investor perceptions

The postal survey demonstrates a high degree of risk aversion in relation to diversification of property portfolios. Hence the likelihood of a company holding property in central Europe for investment purposes is low. The analysis indicates a high to medium/high perception of risk with Poland and the Warsaw market considered to have the greatest level of risk and the Czech Republic/Prague market the least relative risk. UK companies are less likely to invest in central Europe than their counterparts in Germany, Austria, France and the Netherlands.

Rationale for investment

Strategic and long-term issues are relevant with most companies identifying the importance of penetrating new markets. The way in which company strategy can be influenced by the decisions of actors in other sectors of the economy is a key consideration. Motives fir entry into central Europe include the possibility of higher returns due to large yield gap on property investment compared with indigenous countries but with higher levelsw of risk. The research results indicate that a property investment market is starting to emerge driven primarily by German and Austrian investors and dedicated real estate funds. In this context the markets ate distinctly different to those in the early 1990’s immediately following the transition. There is a strong perception that central European countries benefited from the Russian crises and a redirection of investment funds.

Better co-operation between the city abd the many district authorities within metropolitan areas is essential, with better links between the public sector, the community and the business interests.

Policy and institutional perspectives

A clear message is the need for better and more market sensitive structures, for the public sector to operate in a more business-orientated manner, the need for partnership structures and recognition that there is a public benefit to private developments. A shift in attitudes and thinking is required to inject a new dynamic into the planning process. Questions also arise whether the discretionary system of planning facilitates foreign investment with different views on the efficiency of the current system from both and athical and bureaucratic perspective. The findings corroborate the contention that decentralisation of authority at a city level, in the absebce of effective city-wide strategic planning and management, exacerbated by local political interests promotes uncontrolled development patterns.

Factors influencing property investment and development

Key factors identified as influential to property investment and development include the general economic conditions and the relatively undeveloped internal banking and financial structure. Hence the dominant role of international banks, financiers, developers and real estate consultants. Land ownership and uncertainty of title still impose major problems but are perceived to be less of an issue in Budapest compared with Prague and in particular Warsaw.

Development of real estate markets

Based upon elements of the market maturity paradigm several issues are important in this context but overall there is a weak form of integration into the global system though certain characteristics of property market maturity are starting to emerge. The research demonstrates an average to high level of satisfaction with the adequacy of leasing and tenancy structures. All three capital cities exhibit a dynamic development sector. However, the investment market is still highly undeveloped, with a low number of transactions to date. There is an almost total domination of professional services by foreign firms though in both Budapest and Warsaw there are significant advances towards providing the local capacity for professional services. On the downside information flows are poorly developed with a low level of transparency in the market. The lack of basic information and an absence of objectivity in relation to data collection and interpretation pose major questions regarding reliability.

Impact on spatial development

Property markets have had major impact on spatial development patterns in each of the capital cities. There has been expansion and development on the central business districts (CBD) as well as dispersion of office and retail functions. In Budapest and Warsaw the latter has been due to lack of strategic planning and largely uncoordinated city wide action. However, the dispersion in Prague is due to an active planning policy towards developing a polycentric city aimed at reducing pressure on the historic core of the city and maintaining it as a prime architectural/tourist location.

Future development

The need for more strategic and better co-ordination of planning activities is apparent. In this respect better co-operations between the city and the many district authorities within metropolitan areas is essential, with better links between the public sector, the community and the business interests. In each of the three capital cities there is an absence of city marketing and wider vision planning. For various reasons Budapest, Warsaw and to a lesser extent Prague occupy strategic locations with the potential to fulfil gateway functions into Eastern Europe.

Conclusions

The countries and capital cities of central Europe have developed significantly in terms of their competitiveness over the past ten years but significant challenges still remain before they can be considered to be mature markets with transparent structures and fully integrated into global systems.

Investors in ground rents- properties where the residential units have been let on long leases -have usually sat on their investments for years, only reaping their rewards when someone wanted to extend their lease or buy the freehold. Little or no effort was involved. The more serious ground rent investor might look to profit from the management of the building including from insurance commissions.

All of us involved with such businesses have seen the substantial profits to be made at a relatively low cost. For years leaseholders have been bullied by disreputable landlords into paying excessive service charges and unreasonably high insurance premiums. The law gave little protection but now landlords cannot put leaseholders off, challenging service charges by threatening the loss of their lease.

Changes brought in by the Housing Act 1996 came into force on 1 September 1997 and resulted from an Evening Standard campaign in response to one extreme case where a landlord used the threat of high legal costs to intimate leaseholders into paying up, even though the charges were unfair.

Whilst the involvement of the Evening Standard has naturally brought the Act some publicity, especially in London, in my view it appears to have been dangerously overlooked to date. It's low-key introduction is illusion by the fact that one major daily newspaper only did a feature on the subject after I raised the matter with them shortly after the Act came into force.

The Act marks the latest episode in a significant shift in the law away from a landlord bias to a tenant bias over the last 12 years. Past laws such as those in the Landlord & Tenant Act 1985 have been very much under-used by leaseholders. Only time will tell if the new legislation will be taken up but I am confident it will be, Laws which allow leaseholders to challenge service charges which they consider unnecessary or unreasonable will be popular.


Cheyne Walk, London, SW3

Housing Act 1996:

Will it also stop greedy landlords?

In brief, the Act states that unless a leaseholder has admitted or agreed the service charge, the landlord cannot use the ultimate threat of forfeiture to frighten people into paying but must first obtain a certificate from the Leasehold Valuation Tribunal, a panel of property experts, that the charge is reasonable.

Alternatively, leaseholders can apply to the tribunal for a certificate if they want.

No person applying will pay more than £500 in cost and the tribunal has the power to award that cost to the other side, but not costs in general. Leaseholders on benefit may even pay nothing at all. If either party wants to be represented, they must bear their own legal costs. The idea is to make he tribunal accessible to all without the threat of huge legal costs being awarded against them. However, even the Evening Standard recognises the desirability of being represented.
An application can be made before works start to assess whether the works themselves are needed and, if so, whether the anticipated costs or extent of the works are reasonable.

Equally, application can be made after the works have been completed. Frighteningly, not only might landlords foot the legal costs, but the tribunal may also order the leaseholders to pay only a reasonable sum towards the works, leaving the landlord to face potentially huge shortfalls on monies already paid out.

Whilst it is clearly unfair that leaseholders should only have to pay a reasonable sum, the new Act brings the danger of uncertainty to landlords.. >From a positive point of view, landlord swill have to look very carefully at their contracts with builders, ect, and will have to be far more energetic in enforcing rights against bad contractors.

The tribunal can force landlords to change insurers if they feel the policy is not competitive, which means they can no longer choose more expensive buildings insurance policies in order to solely to generate larger commissions.

As a final blow, it is the tribunal which will now be responsible for deciding whether the landlord's conduct warrants new managing agents being appointed in place of the current one or the landlord personally. A breach of the lease by the landlord or mere failure to adhere to one of the new codes of practice regarding the management of service charges will usually constitute sufficient evidence of mismanagement to warrant the appointment of managing agents by the tribunal.

- FPD Savills believes that the annual return on equities has been 18% since 1974. That compares with 14% on rental property. But equities were three times as volatile over that period.

- UK house prices rose 0.8% in June, according to Nationwide figures.

- Mortgage rates are currently at their lowest rate in 30 years.

- Property hot-spots include Luton, Ayr, Newcastle-upon-Tyne and Clitheroe, Lancashire.

- House prices in London have trebled since 1983.

- The average age of first-time buyers has gone up from 21 in 1988 to 30.

- It takes longer to buy a house in the UK than almost anywhere else in Western Europe.

- Property management fees normally account for around 10 to 15% of rental income.

- There were 1.35 million housing transactions last year, compared with more than 2 million in 1988.

- Average mortgage repayments for first-time buyers in London account for 24% of their salaries. In 1990 it was 46% of their salaries.