The coronavirus Covid-19 outbreak is having far-reaching global effects – no only on people’s health but on businesses, stock markets and the world economy. Its scale and severity are prompting a re-examination of how the whole of modern society functions, so it should come as no surprise that it’s also having an impact on some parts of the property investment market.
To talk us through the key issues, here’s our Business & Marketing Manager, Jason Guest.
Q. Jason; how worried should property investors be right now?
A. There’s no doubt that Covid-19 has created a public health crisis and that it’s exposed weaknesses in many different aspects of society. Retail supplies have been hit by panic buying and social distancing is potentially disastrous for some hospitality and sports-related businesses. It will be something that we remember for generations, I’m sure, but for all that, I don’t think that the majority of property investors should be unduly concerned.
Q. Really? Tourism is being hard-hit and countless people are staying home. Surely that’s going to have an effect?
Yes, that’s true, but the coronavirus is going to affect different parts of the sector in different ways. It’s important to understand those differences because doing that can help investors to shift their strategies.
For example, let’s look at short term lets. This virus is certainly going to be bad news for those who rely on tourist visitors for their rental income. Travel will probably be minimal in the coming weeks and months, so we can expect occupancy to be well down. We’ve spoken recently to people who own serviced accommodation and other short term let properties, and a number of them have been looking to change their pricing structures to attract longer term tenants.
That could be a good strategy; the virus has done nothing to change the fundamentals of the housing market. There is still a huge shortfall in the supply of good quality rental property, and people still need places to live. In fact, at a time when living in crowded conditions is very much a concern, a lot of people will be especially eager to find a place of their own, even if it’s only for a limited time. That will obviously include young adults who are still living with parents or flat-sharing. But we also know of landlords who have taken enquiries from people wanting a place to self-isolate – either to protect themselves or so they don’t pose a risk to their families.
These are the early days of the pandemic and landlords are still working through various strategies. But a lot of the problems can be worked around with a bit of thought. All our advisory team members are working from home now, but we’re still taking customer enquiries and these are the sorts of conversations we’ve been having.
Q. And you think that some sectors will be more resilient than others?
A. Definitely. I mean, look at the public health advice: millions of people are being asked to stay at home as much as possible. Social distancing means that a lot of people in rented accommodation will have no intention at all of moving while the pandemic is in progress. That means that landlords with existing tenants should be able to count on steady demand and a lower rate of churn than at almost any other time in recent history.
Q. But what about rental arrears? If people are sick or self-isolating, isn’t there a risk that they’ll lose income and struggle to pay rent?
A. There is. That’s a real issue and it’s one that the government is trying to address right now. It’s too early to say how that might be worked out, but there’s no doubting the government’s intention to protect tenants and businesses at a time of national emergency. We know that policy-makers have already started to talk about measures to prevent Covid-related evictions, and I think we can assume that they’ll also be thinking about ways to keep landlords protected. Mortgage holidays will probably be part of that solution but that’s where we start to get into the realm of speculation. I think this is a case of ‘watch this space.’
Q. But overall, you think the property investment industry will come though this period intact?
A. Yes. I think it’s bound to. Rental demand is still strong and people still need homes. These are simple facts and they won’t go away. Just this week, in a poll carried out for a London estate agent, over 80% of buyers and vendors said that the coronavirus would have no impact on their decisions. Demand is very resilient and vendors – including developers – still need to sell.
There will be obstacles, of course. In the short term, I think we’re going to see a sharp drop in transactions because investors might be isolating themselves or unwilling to risk going out to view new properties. But that will only last as long as the pandemic itself. We don’t know how many months that will be, but it will end, and demand won’t vanish in the meantime.
We saw something similar with regard to Brexit and the last General Election; people didn’t stop wanting to buy property; they just waited until things became clearer and more predictable. Immediately after the election, we saw a big spike in transactions and a rapid rise in property prices. I think that’s probably a useful parallel.
Q. So you think property investors should sit tight and hold their nerve?
Yes, although I wouldn’t put it like that. For landlords with existing properties, business should run more or less as usual, with existing tenants keen to stay where they are.
It shouldn’t be a question of holding your nerve. Demand will stay strong and, one way or another, rental properties will still produce an income. The UK private rental sector is massive – a £50 billion industry supporting about 5 million tenants – so I think the government will be conscious of the need to protect it from any severe, short-term shock.
And ultimately, property investment is a long-term business; typically, it’s conducted over many years, whereas a pandemic like this exists for a much shorter time. Once it passes, all the usual market forces will be at play again. In fact, I know of some investors who are regarding this as an opportunity; hoping that the virus will temporarily reduce prices so that they can buy low and then see rapid capital appreciation in the period immediately after.
Q. Any final thoughts?
A. I think it’s really important not to over-react or act hastily. So much is still uncertain at this moment that it would make no sense at all to make big financial decisions. Significant policy decisions are being made every day, nationally and internationally. Until things settle into some sort of pattern, it’s going to be very difficult to make well informed investment choices.
For now, I think the best advice is to keep a level head, follow all public health advice and, otherwise, operate as normally as possible.
For our part, we’ll still be here to offer information and guidance, and we’re adapting quickly to a more remote way of doing business. For example, we have virtual walk-throughs of many properties that allow prospective investors to see a place online without exposing themselves to any infection risks.
It looks like we’ll all be spending a lot more time in our homes but the upside of that is that it gives people a lot more time to think, do their research and, ultimately, make good, well-reasoned decisions.
For more information on this or any other aspects of the property industry please feel free to contact our advisory team on 01244 343 355 or email email@example.com