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
- 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.
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.
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
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