Official figures show that the UK economy, and the property market specifically, have taken a nosedive. Prices fell by nearly 2% in May. This fall in price is the largest decline the property market has seen in more than a decade. However, according to Nationwide’s chief economist, we are now seeing signs of the market stabilising. Many economists have also been quick to point out that the current situation is different from other economic downturns that we have witnessed.
Rather than allowing the economy to crumble under Covid, the UK government did what most other governments did. They put the economy on hold and introduced financial protections for both individuals and businesses.
While the pandemic has placed a tremendous emotional and professional strain on many landlords, others have managed to use this time to their advantage. Lots of landlords have a never-ending to-do list of odd jobs and other minor fixes that their properties either need or would benefit from. With a temporary freeze in taking on new tenants and making sales, a lot of landlords finally had the time to tend to some of the tasks that they had previously been putting off.
COVID-19 And London Property Prices
According to the property website Which?, the UK’s property market has now reopened in earnest. We aren’t back to the pre-Covid market by any stretch. However, property trades are now beginning to move again. Both buyers and sellers are engaging with the market just as they used to. Still, it will take several months before property prices stabilise. Until that happens, no one can say for sure what impacts Covid-19 has had or will continue to have on the markets.
As an incentive to encourage buyers to purchase property during these uncertain times, the UK government instituted a temporary cut to stamp duty. Buyers who move into a new property before April 2021 could save themselves up to £15,000 on their tax bill. Provisional data released by HMRC suggests that this measure has been somewhat successful. Property sales are still down 27% when compared to last year. However, the cut did herald a 14.5% increase in month-on-month sales.
The long-term impact of Covid-19 on property prices remains to be seen. We won’t know with absolute certainty how Covid-19 has impacted the property market until it is more or less over with. Land Registry UK maintain the House Price Index for the country. Most property businesses regard this Index as the gold standard for measuring UK house prices. According to Land Registry UK, we should have a clearer picture of the long-term impacts of Covid on the property market by 21st October.
The damage inflicted by Covid 19 on global markets has been well documented by the financial press however the swift and decisive financial intervention by the government has unquestionably minimised the shock.
Our view
We have always been of the opinion that the real estate market in London is extremely resilient and that it recovers very quickly from market shocks; whether they be national or global. It is for this reason that London real estate is regarded as a safe haven and this time has been no different to past experiences. As lockdown has been gradually eased, we have seen a number of very positive signs of recovery in the market. Whilst transaction volumes are still low compared to historic levels, there is no doubting that positive sentiment is returning. This applies not only to the investment market but also to the occupational market; life is returning to London’s shops, bars, and restaurants, and office workers are gradually returning to work.
Construction across London has continued almost uninterrupted throughout lockdown and in the last few weeks activity in the investment market has significantly picked up with a number of high-profile transactions going through. There is undoubtedly a widening gap between the best properties and secondary ones but the right property in the right location is still attracting a lot of interest and achieving a price at or above pre-Covid levels. Values have largely held firm and this is not only very encouraging but also underlines London’s resilience and confirms its status as one of the top global destinations for real estate investment.
As such we strongly believe that it is now appropriate to recommence our activities with a view to start investing in value-add opportunities by the end of the year.