Property Investment has thrived during the pandemic, let's look at why, and what this means for investors in 2021.
2020 was a year like no other.
It was a year of unprecedented uncertainty, change and upheaval.
Covid-19 and the frequent lockdowns were incredibly tough on UK businesses, Retail, Leisure and Hospitality, in particular, have all taken huge hits which has greatly impacted both the Highstreet and the stock market.
With the British Retail Consortium (BRC) reporting a drop of 25% in sales for non-essential items and UkHospitality reporting that Hospitality industry sales plummeted by almost 87% in the 2nd quarter of 2020, it’s easy to understand why the FTSE dipped by 14.3% in 2020.
It makes for pretty scary reading, but I promise, this article isn't all doom and gloom.
Uncertainty in the stock market, a fluctuating pound and the stop-start Brexit negotiations may have created a minefield for investors, but tech and food retail stocks performed well during the pandemic and now that the vaccine is rolling out and stores are beginning to reopen, there is a renewed sense of optimism that the economy will bounce back as retailers, bars and hotels begin to reopen with the government predicting that GDP will rise by 5.3%, a massive increase from 2020's reported -9.9% growth in GDP.
While other areas of investment floundered and are now slowly recovering, one avenue of property investment that performed remarkably despite the pandemic, proving both resilient AND profitable was property, but why?
Stamp Duty Holiday
The government's Stamp Duty holiday was introduced in July 2020 by Chancellor, Rishi Sunak as a way to "smooth the transition back to normal...".
Investors have viewed this tax break incredibly favourably as it allows them to pay zero sales tax on the first £500,000.
There has also been a cut for buyers of additional properties, such as seasoned buy-to-let investors.
The new rate for additional properties starts at three per cent up to £500,000, which, using the same example of a £400,000 property, would save the investor £10,000.
The scheme is set to end at the end of June 2021 so there's still time to take advantage and make the most of the reduced rates but you'll need to move fast.
If you're interested in learning more and want to speak to our property investment team, please click here.
One boom area of the UK property market has been in the Furnished Holiday Lettings and Short Term Lettings sectors.
Travel has been difficult and international travel is currently unlikely for a while which means that record numbers of UK holiday makers will be taking their holidays within the UK.
UK coastal towns in particular, have seen a huge spike in demand as holiday makers look to make the most of the first post-vaccine summer.
This boom in "staycation" breaks has increased the price of holiday accommodation by, on average, 35%, making any kind of holiday property a highly desirable addition to many investors portfolios.
It's not just holidays though, Short Term lettings were boosted due to the temporary closure of many hotels. Workers who travel for work snapped up the opportunity to have a home away from home while those who had returned to the country were able to self isolate in comfortable surroundings.
The Demand for Homes
The UK is experiencing an ever increasing demand for housing, even with 244,000 homes being built between 2019 and 2020, government estimates currently sit at the need for around 345,000 new homes to be built each year to meet demand.
As many people now work from home interest has also increased in larger properties as people look to have their own clearly defined office space, better helping them maintain a work-life balance.
In an interesting statistic, while 250,000+ people moved home, there was a 12% drop in sales for first time buyers, showing that, right now, young professionals are leaning towards renting as opposed to owning property. This is great news for investors as rentals continue to perform, even when there are attractive incentives for first time buyers, Zoopla reported a 20% increase in demand for rental property while, the average rental price rose by 3.2% in 2020 with Savills predicting this growth will continue into 2021.
For investors in the Buy-to-Let market, even during the pandemic, it's proven to be a very robust market.
What Does This Mean For 2021?
Now that the vaccine is rolling out and there's a light at the end of the Covid tunnel, we again hit a period of transition, this time back to some semblance of normality.
The reopening of the highstreets, the return to bars and the ability to holiday returning are all excellent signs for investors of all kinds, but property again looks to benefit from the "new normal"
As discussed earlier, holiday lets and short term lettings look to continue to shine in terms of demand and yields, as the public clamour to get away, mingle and unwind across the UK.
Likewise, for long term rentals, with the average time a property is on the market dropping to 14 days, the demand for quality homes shows no signs of slowing down.
The increase in house prices means that, for many, rentals are still the most affordable option and this increase in house prices is forecasted by Savills, to continue far beyond 2021.
As a business, we have had a record year for property investments, reporting the busiest period in our history for investment sales, Investment Manager Michael Holliday has this to say on why Residential Estates and our investors have faired so well in such turbulent times:
"I believe this is down to a mixture of factors both internally and externally.
Externally – the market is buoyant with the help of the Governments interventions such as the stamp duty holiday and the fact that demand still far outweighs supply in the UK for property.
Internally – the variety of property for sale we have has helped enormously. We have tried to include a variety of investment opportunities for our clients as we appreciate there isn’t a one size fits all for investors.
There are those that like the traditional HMO market for instance and some that like the more ‘hands off’ rental guarantee model through PBSA (purpose built student property).
Without a doubt though, the most significant internal factor is our experience in the short term let/holiday let market.
As a company we have managed properties this way for over 12 years and we were doing it before the likes of AirBNB.
COVID has helped promote the staycation market tremendously and the fact we not only manage properties this way but also sell investment property with this model has led to a significant increase in sales.
The final factor worth mentioning for our recent success is the quality of our team.
All of our consultants have a vast amount of experience in the industry and our efficient aftersales/customer care team ensure every client is looked after."
2020, while difficult, has proven just how robust the property market is in the UK, and, with light now at the end of the tunnel, looks set to continue on an upwards trajectory.
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