
COVID-19 is a global pandemic affecting developed and emerging economies around the world. Financially, it has had a drastic impact on economic systems and global supply chains. For example, the US stock market experienced decline at a scale greater than during the Wall Street Crash, and governments are eager to offer financial aid at an unprecedented scale to support businesses, consumers and investors.
What, then, can we expect to happen to the UK property market? And how can property investors correctly manage their existing portfolios?
The best advice remains the same – do not make rash financial decisions based on sudden market movements. We must remember that this current pandemic will pass and, when it does, I am confident that surging buyer demand for UK real estate will return much like we saw at the beginning of the year.
A strong beginning to the year
After a period of modest house price growth as a result of Brexit uncertainty, 2020 was originally touted to be the year that confidence would return to the real estate market in full force. This was confirmed by Nationwide’s published House Price Index (HPI), which showed that annual house price growth increased to 3% in March 2020, the highest year-on-year increase since January 2018. Halifax’s March HPI, published on April 7th, likewise observed 3% year-on-year growth since March 2019 – as well as 2.1% positive change in quarterly figures.
The impetus for this sudden recovery was the election of the Conservative majority government in the December 2019 election. Previous to this, owners and buyers were skittish about how Brexit may affect their transactions – fearing a price collapse or major currency fluctuations would affect house prices. A majority government fully committed and politically united seems to have put this market scepticism to rest.
A pause, not a decline
The cut-off for Nationwide and Halifax’s March HPI’s was admittedly before the Government began to actively impose social distancing rules. Now, market activity has essentially come to a halt. An increasing number of lenders are not taking on new cases and the Government is actively discouraging people to buy or sell property.
Social distancing measures will naturally affect the performance of April’s HPIs. House price growth is likely to decline, but we must be careful not to equate a decline as a reflection of decreasing demand. What’s more, there is also a bigger picture to appreciate.
The global real estate provider Savills has not revised its final five-year property price forecasts outlined in November 2019 in light of novel coronavirus. Having predicted a 15% increase in overall average UK property prices by 2024, Savills has re-affirmed their commitment to the figure even as the lockdown is in full force.
Understanding the bigger picture
2020 got off to a strong start, with the Boris bounce encouraging domestic and international buyers to consider new real estate opportunities. This was encouraging to see and explains why COVID-19 might not have such a profound or long-term impact on the property market.
The aftermath of the 2019 General Election showed that there was much pent-up demand for UK real estate held back by a Brexit-cautious market. COVID-19 has seemingly replaced Brexit as a source of anxiety and uncertainty amongst some buyers. Once resolved, however, I believe there will be no shortage of new buyers.
There could even be opportunities on the horizon. For example, Savills predicts that COVID-19 will result in an immediate drop in general prices of between five to 10 per cent in short-term. Given the property market’s ability to recover quickly, this means that would-be buyers may be able to purchase real estate at comparatively low prices and be in a position to witness an appreciation in value when the pandemic has been fully resolved.
Jamie Johnson is the CEO and Co-founder of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors, institutions as well as family offices. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development projects.
Jamie Johnson is the CEO of FJP Investment