PropertyInvesting.net: Property Investment Special Reports

574: Longer Term Covid-19 behaviours and impact on property market

PropertyInvesting.net team

Massive Economic Damage: The COVID-19 pandemic will have a lasting impact on the UK property market and the way people work for years to come. It’s been a massive economic shock and the ramification will take quite a long time to play out.

Changes in Behaviours: Lets give you some examples of changes in culture-behaviours highlighted triggered by the pandemic that are likely to be seen in some shape or form in the property market henceforth – the importance of:

• A garden to sit outside (with options to meet people, sunbath and exercise)
• In cities – terraces and balconies (allowing people to sit outside, preferably south-west facing)
• Proximity to green spaces and parks
• Broadband quality-speed and access
• Car parking to allow access to and from property without using public transport
• Leafy areas well away from the most densely populated areas but close enough to businesses-offices

Outside Space: We are likely to see the price of flats with outdoor spaces hold their value better than those without any outside access. Areas close to large parks – like Richmond (London), Headlingly (Leeds), Edgebaston (Birmingham) – are likely to see their prices hold up better than most. High rise areas with flat, no balconies and very dense population will likely see prices dropping.

Fastest Drop: Areas that are likely to see prices drop the most and fastest are remote rural areas with poor broadband connectivity and many holiday lets and holiday homes – where people will be forced to sell in part because the holiday let market and tourism has been so badly impacted in the period 23 March to 4 July 2020. There will undoubtedly be destressed sellers in places like Cornwall, south Devon, Cumbria-Lakes, coastal Dorset – second home owners that decide to cash-in after a very bad season.

Stagflation: Overall the economy is tanking and though the emergency measures will help – its just currency that is formulated from thin air – electronically - and will eventually lead to stagflation – that’s low growth with higher inflation – to pay for the economic shock and lack of productivity and tax returns during the period 23 March to say Sept 2020. We expect food prices to rise sharply by the end of the year.

Borrowing Costs Drop:  Okay, its helpful that mortgage rates have dropped and government support for businesses and individuals will cushion the blow, but the key downer is far higher long term unemployment as many service related jobs have simply disappeared and may never come back. That said, borrowing will be more difficult as banks say cautious as prices drop. 

• Jobs That Will Dry Up: Just a few jobs that will probably never recover:
• Café-restaurants -  waitress/waiter/cook
• Shops – high street shopkeepers (particularly those without internet sales)
• Hairdressers – people have learned to manage without – so fancy costly hairstyles might never come back
• Football – gate receipt will be lower until people get over the fright of mixing with thousands of people again
• Concerts – music/bands will struggle to get audiences and online sales have poor returns
• Pubs – many will or have already gone under – and may never re-open particularly those without a beer-garden or outside chairs
• Dry cleaning – less office workers needing high-end cleaning

There will be far less money going around generally – people will be trying to save and not spend on discretionary items with all the uncertainty even as the pandemic itself wanes.

Retail and commercial property - is going to take a massive hammer blow for a few reasons:

• People have learnt how to shop on the internet – and are likely to avoid the high street for fear of catching COVID-19 for some time to come – the high street in towns and many cities will never recover
• People have learnt how to work from home – and new ways of working (ZOOM, MS Teams etc) has massively accelerated. The precedent is set. Companies have found little difference in productivity. Many employees have learnt to work from home and like it.  Hence many more jobs will be working say half the time from home and half in the office – using shared hot desks – so office space requirements could drastically drop rendering many offices development sub-economic leading to dropping commercial rents.  Its not a good time to be building-completing new offices.

Working From Home: On the flip side, people will be needing nice homes to work from – and this goes back to the value of a small garden in cities -  where people will be building more home offices (in many instances, a 10m3 wooden home office does not require planning permission, and if it costs £10,000 to build, it could add £20,000 to the value of your property and provide you this value amenity long term). If you have a small business – then the cost of such a project may be tax deductible, particularly if the business is registered at your home address.

Costs and Savings of Working From Home: For all those workers that work from home – its worth considering that the electricity and heating related to the activity could eventually by paid for by the employers (many large companies will see their office space requirements drastically reduce, so it would seem prudent for these companies to make a contribution to extra electricity and possibly heating in the winter that the computers and office-space requires). The Chancellor might give this some thought since the efficiency gains should really be shared and not at the detriment of the employee – unless the contract is more like “work from home at your cost otherwise you don’t have a job anymore” – or “its all in the salary or day rate”.   On the flip side, the employee saves huge amounts of money not buying expensive lunches, travelling and office clothes – particularly for women that often feel under pressure to have a multi-variant wardrobe. So overall – the employees save, the companies save – and it’s the commercial office suppliers, suppliers of lunches for employees and travel companies (rail-tube) that lose out. The overall GDP could still be fairly high overall – but less frantic travel and many services jobs suffering as these new ways of working are adopted long term across the UK.

Overall Impact: In summary, commercial rental and offices will be severely impacted from higher unemployment (less jobs), and new ways of working. Residential sales and letting will be impacted by higher unemployment and the recession (lower long term trend GDP).  By the end of 2020 – if property prices in London have not dropped at least 10% we would be surprized. In the Midlands and North where a good head of steam was developing in Jan-Feb post General Election, we expect prices to start dropping but not quite as severely as London.  Rural areas with many holiday homes might see prices drop the most – areas like West Wales, Cumbria and Cornwall.

Challenging: It’s going to be a very challenging economic period for the next few years – and property prices realistically are likely to be hammered down. For first time buyers and property investors – it would be best to wait a while for prices to drop down and possibly by end 2020 pick up a bargain off people forced to sell due to higher unemployment and lifestyle changes. On the positive side, there is a stable Tory government for the next 3½ years and very low interest rates plus support from the Treasury that will help cushion the blow and help a rebound later possibly mid 2021. Its not a good time for the property investor, but do keep your eyes open for opportunities. 

Threat of COVID-19 has not gone:  Finally and extremely importantly – we hope everyone is staying safe a possible – the threat of COVID-19 has not gone away. As we described early May - it looks like it hits an area-region for around 70 days – after the first cases are identified the peak fatalities are after 40 days (4 April in UK’s case)  – then cases dying away from this time – and we hope it fizzles out by July – but the big threat is it surges again in the Autumn – the traditional flu season. Fingers crossed it stays very low end 2020.  Stay safe.

We hope this Newsletter has give you some insights into the economic impact of COVID-19 on the property market, opportunities and threats. If you have any queries or comments, please do not hesitate to contact us on enquiries@propertyinvesting.net 
 

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