A positive return of 3.4 per cent for the 2009 IPD Annual Index has confirmed a recovery in the property markets.

James Thornton, fund director, and Nita Singh, investment strategist at Mayfair Capital Investment Management, said: “The positive return seen in 2009 looked unlikely at the mid-year point when yields rose by 80 basis points and came back by 100 basis points in H2.
 
“Whilst yields have rebounded from an oversold position, what is surprising is that yields have corrected at a time when rents continue to fall, albeit the rate of decline is slowing. Notwithstanding this, the risk premium remains at 400 points, meaning that there is scope for further capital appreciation in 2010. It is evident that investors view property as an attractive source of income relative to gilts where significant pricing risks remain.”
 
Thornton says a wide range of investors have sought to take advantage of the market in 2009 but with an absence of sellers, volumes remain low with around GBP25bn transacted in 2009. This is around the same level as 2008 but only half the volume seen in 2005 to 2007.
 
“A feature of the market has been the absence of banks selling to date. With an estimated GBP35bn to refinance in 2010 and 13 per cent of the loans estimated to be in breach, we expect an increase in bank selling in 2010,” he adds.