“Is property still a good investment” is likely to be a question you’ve asked yourself over the last few months as recent events have left us all wondering what next when it comes to the property market.
Investors of all kinds like to plan ahead and to minimise their risks, so they generally dislike any instability or unpredictability in the market. Unfortunately, 2020 has delivered both of these things. As a result, it has been an exceptionally unusual and challenging year for economies across the globe, including the residential property market.
In country after country, coronavirus lockdowns have prompted social distancing, temporary business closures, job losses and empty high streets. Average incomes and consumer spending have fallen, public sector tax receipts have plummeted, and there is still no clear sign of when modern life might return to normal.
In the UK, which has suffered one of the worst Covid-related death rates in the world, the economy has shrunk markedly. According to ONS, it contracted by 20.4% in April, which represents the largest monthly fall since records began. The Government was quick to introduce financial counter-measures, including huge spending commitments to the furlough scheme and support for the self-employed, but even so, such a sharp fall in activity will inevitably have impacts that are felt throughout the economy.
Common sense would suggest that the residential property market must eventually suffer a downturn, just as other sectors have done. After all, with fewer people in jobs and millions earning only 80% of their former incomes, people have lost considerable spending power. Whether those people are potential house-buyers, home-owners with a mortgage, or tenants in the private rental sector, less money in people’s pockets generally translates into downward pressure on prices.
Small wonder then, that many property investors and would-be landlords are taking this time to ask ‘should I invest in property?’ and reconsider their options.
To answer whether property is still a good investment, we called on Residential Estates’ investment advisor, Jason Guest, and asked for his insights into the current situation.
Q. Jason; presumably, when it comes to the property investment you’d agree that we’re in uncharted territory here? These are difficult conditions, aren’t they?
Oh, yes, without question. No one can seriously look around at all that’s happening and not be concerned about the immediate and longer-term economic impacts. The conditions are unprecedented – no one has really seen disruption like this since the Second World War.
Looking at the economics of it, it’s obvious that having shops and offices standing empty for months on end is unsustainable. Some industries have been harder hit than others; the hospitality and leisure sectors are obvious examples, but business in general has been well down. In real terms, that means people earning less money or losing their jobs altogether, it means less spending overall, and it puts serious pressure on many businesses who need their cashflow to survive. It also means much lower tax revenues for government and local authorities, so public spending is also going to be seriously constrained in the future.
Q. So against that background, it’s fair to expect the buy-to-let sector to be badly hit, isn’t it?
If you’d asked me that a couple of months ago, I think I would have predicted that, yes, the buy-to-let market would take a fairly sharp hit in the short term but then it would gradually recover. As it’s turned out, it’s looking more like it will remain steady in the short term; then it will take a hit towards the end of 2020, and after that we should see a fairly strong and sustained recovery.
The buy-to-let sector has taken a hit, but Jason thinks it could still make a recovery. Join us later this week to see what changed Jason's mind and gain insight into how the current economic situation will effect the future of property investment.