Words by Nicholas Maestri, director and head of property at Bargate Murray.
The coronavirus crisis has delivered a body blow to the global economy. In recent weeks, we have seen stock markets crash as whole sectors of the economy shut down overnight. The property market is not immune to this crisis. Yet property is a long term investment, where buyers often think in decades rather than months. A property purchase is often more than just an investment when people are buying a home. It can then be an emotional purchase, a decision more immune to the hard logic of the market.
Activity in the UK property market has plummeted in recent weeks. Estate agents have reported a significant fall in enquiries, as people became disinclined to view properties, given mounting fears about contracting the coronavirus. International buyers are also increasingly unwilling or unable to fly to London to view properties, thanks to ever-tightening travel restrictions and cancelled flights. Buyers heavily invested in the stock market have also suddenly found their resources depleted.
Yet there are a few brave investors still active in the market, perhaps mindful of Warren Buffet’s advice to “be fearful when others are greedy, and greedy when others are fearful”. Innovative estate agents are even arranging virtual property viewings via Skype to combat the downturn in viewings. Some agents also offer virtual reality tours of properties for sale. Other purchasers are sending UK based agents to view properties on their behalf.
I am aware of significant properties being bought blind in recent weeks. Perhaps we should not be surprised by this development, in a world where we routinely buy things online without having seen them in the flesh. Motivated buyers are clearly doing what they can to continue investing, despite the enormous economic uncertainty created by the coronavirus pandemic.
Yet such investors are the exception. Most buyers are holding their fire for now. Indeed, in the luxury London property market, a number of international investors have pulled out of property deals in recent weeks. After all, many economists are now predicting an imminent global recession due to the coronavirus pandemic. Given the unpredictability of the pandemic, it is impossible to know when the crisis will end or how large its economic impact will ultimately be.
Given the strong underlying demand for property in the UK, some are predicting that property will fare well. However, even Savills have noted that “sellers will undoubtedly need to remain pragmatic on pricing over the course of 2020, as demand becomes more dependent on needs-based and opportunistic buyers.” It is precisely because motivated sellers will have to reduce their prices that we are already seeing investors sensing an opportunity.
After all, property transactions in the UK increased 12.7% in the year to January 2020, with 102,810 sales going through. This suggests that demand is fundamentally high and that there is the potential for a rebound – both in the property market and sterling – if the coronavirus pandemic is brought to a halt, and a reasonable EU-UK trade deal is concluded – both of which could reasonably be expected to occur within a year or two. Perhaps such long-term calculus explains the interest of some the adventurous overseas buyers.
In the meantime, UK investors with significant rental properties can take some comfort from the government’s response to the economic impact of the epidemic thus far. Residential landlords may be protected by the policy of protecting up to 80% of the wages of employees affected by the crisis. This means that many employees should be able to afford their rent – or most of it – while the policy holds.
The government has also promised £330 billion in state-backed business loans, which Chancellor of the Excheque Rishi Sunak says “means any business who needs access to cash to pay their rent, their salaries, suppliers or purchase stock will be able to access a government-backed loan or credit on attractive terms”. These measures are of course intended to support the many affected workers and businesses, but they may have the secondary effect of supporting property values in the event of a quick resolution to the coronavirus crisis.
Research recently conducted by estate agency Benham and Reeves found that 83% of buyers and sellers plan to return to the market once the crisis passes. However, despite such optimism, we have undoubtedly entered a volatile period for buyers, sellers, landlords and renters. For the time being, nobody is certain when this crisis will end. For now, only the most highly motivated buyers and sellers are keen to continue operating in these very uncertain times.
Please feel free to contact me on nicholas@bargatemurray.com should you require any assistance. Bargate Murray is following government advice and are working remotely from home. I hope everyone stays safe and well during these unprecedented times.