Tag: Commercial

Only a few months ago we sighed a sense of relief that we had a majority in government and that we could move forwards politically and economically… and then Coronavirus hits the streets.…

The lockdowns across the globe are creating an interim ‘normal’ as property investing, for many, takes a back seat. However, there are still some of you checking property investments out from the comfort of your homes but have many questions like:

• How ‘safe’ is it now to invest in the UK property market?
• What am I best doing now?
• What will happen with property prices?
• Can I still get a mortgage?
• How will the market look post COVID-19?

How ‘safe’ is it now to invest in UK property?

The UK has long had a supply: demand imbalance and the building industry has been trying to keep up with the annual supply of houses, but has never quite managed to meet target numbers. That remains the case and is now exacerbated by vendors not being able to come to market, or at least not as easily in the past. Estate agents have stopped physical viewings, surveyors have halted site visits and many conveyancers are not rising to the challenge of digital and remote working.

All of this means that supply is constrained, but core demand is still there. UK residential stock is a defensive sector, with vanilla buy-to-lets the cornerstone.

The commercial sectors (retail, office, industrial) will, in all likelihood, suffer greater impact as commerce takes a hit during the lock down period. Although Permitted Development Rights developments will potentially get a boost as more high streets lose retailers.

Sectors such as Serviced Accommodation (short lets), Holiday Lets and some HMOs are finding the times challenging as everyone migrates back to their longer term residences. These sectors will, no doubt recover, but it might take time.

The biggest risk currently is delays in new schemes coming to market, with different parts of the supply chain getting back up to speed after the crisis. Possibly impacting bigger developments more, if there are volume supply issues with materials like bricks.

The key is to plan ahead, understand and prepare for these eventualities as an investor.

What am I best doing property-wise now?

Choose the property sector that best suits your strategy, given any risks mentioned earlier. Don’t over-stretch yourself financially over the next 6-9 months and take sensible risks.

Projects nearer completion may be ‘safer’ for investors, given the inherent delays there are going to be in the supply chain for new projects and developments. There may well be some keen prices on early-stage off-plan and new builds, as developers seek to bring cash flow into their businesses, but the risk needs to be evaluated alongside your own financial position and appetite for risk.

What will happen with property prices?

Whilst transactions have fallen away as viewings are not happening, it is less certain property prices may tumble given the level of demand for property is still present.

Many valuers have a 3-month Covid-19 Clause which indemnifies them for their valuations, so we will tend to see normal property valuations continue in the short term. But after 3 months, there will be no historic, robust, 3 month comparables. We might then see valuations being written down to cover surveyors who will be thinking about their Professional Indemnity Insurance, but demand will still be there. There are more likely to be delays bringing residential property to market than significant down valuations.

Can I still get a mortgage?

Some lenders are reducing loan-to-values (LTVs) and increasing rates, not all lenders though. Banks still want to lend. Property offers security versus many other forms of lending with little or no security.

It might be useful to consider the banks financial position, given the stronger lenders with a solid financial backing are more likely to persist with a decent flow of lending and less likely to tighten their risk-management.

How will the market look post COVID-19?

Comparisons have been drawn with the Credit crunch of 2008. During the credit crisis, the FTSE declined 43% from peak to trough. UK property prices declined 19% from a peak in Sept 2007 to a trough in March 2009 (Land Registry). 

The 2007-09 credit crisis involved different dynamics, given it was financial, with an almost-complete collapse in the banking system. Millions of people lost their jobs, their homes, their savings or their businesses as credit dried up. While the economic disruption now is immense, the long-term effects on the economy are likely to be far less severe given the speed of government intervention.

UK government stimulus now is more than ten fold the stimulus package in 2008. This gives rise to the view that the bounce back will be quicker than post 2008.

If developers survive the shut down, it could take 3 times the length of the shut-down to recover. Some contractors and consultants may not survive even if developers do, which will create delays as developers seek to replace key members of their build team.

On the upside, we could be living with another 3-5 years of ultra low interest rates, which will ease the borrowing situation and enhance leveraged-investor returns.

If you would like help with planning ahead, understanding and preparing for these eventualities as an investor then please get in contact.

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Sources: Inspired by ‘Trusted Land’ Webinar, Invest-like-a-Pro, CER

Tags: Commercial, Covid-19, Residential, UK