Is UK property still a secure asset in the wake of COVID-19?

The UK property industry kicked off to a flying start at the beginning of the year, only for this momentum to suddenly disappear in the wake of COVID-19.

Related topics:  Property
Jamie Johnson - FJP Investment
7th August 2020
Jamie Johnson 301

Although some transactions that were already underway were completed on, for the most part, the withdrawal of mortgage products from the market and the closing of estate agents nationwide meant that sector activity was substantially reduced at the height of the lockdown.

Thankfully, with the rate of infection down and the Government introducing initiatives to reignite property investment, it looks as though we have now entered a period of recovery. Nationwide’s July House Price Index (HPI) showed a 1.5% year-on-year increase in house prices and property listing site Rightmove boasted an incredible 75% increase in buyer enquires during the same month.

Of course, the question for property investors is whether the housing market can sustain this momentum for the foreseeable future. Will we witness a return to pre-pandemic levels of growth, or will this current period of recovery fall short, precipitating a second fall in activity?

The long-term capital growth of property in the UK relies on this question, as investors will only provide the stimulus needed for the market if they are confident that their portfolio won’t be subject to a sudden market crash outside of their control.

Property’s all right

To gauge whether or not buyer demand will return to the property market enough to sustain continued returns on investment for buyers, it’s worthwhile to look at what market trends were affecting the housing sector in the years preceding 2020.

Brexit uncertainty was suppressing demand and creating a continued air of uncertainty, warding many domestic and international buyers off of making any large financial investments, property-related or otherwise.

This was confirmed by the market’s reaction to Boris Johnson’s victory in the December 2019 election. After almost three years of stagnating house prices, January 2020 saw the highest rate of house price growth since 2017. The uncertainty surrounding the UK’s geopolitical position ended with the Conservative government’s passing of the Brexit Withdrawal Bill, unleashing the pent-up demand for UK property that had been accruing in the years prior.

The question now, with COVID-19 uncertainty weighing on the minds of investors, is whether these buyers and investors feel safe and certain enough to soon act on the demand which was shown to exist in January 2020.

Seeking certainty in unknown times

The ending of strain caused by Brexit uncertainty on the property market was quick and seamless. The economic recovery from COVID-19 sadly won’t be this sudden, however, recent signs do indicate that it may be quicker than some may have feared.

COVID-19 case numbers have been decreasing fast across England which, in conjunction with the comparative discounts on offer from the Government’s recently implemented stamp duty holiday, has been luring buyers back to the market and instilling enough confidence for activity to grow steadily once again.

A recent FJP Investment survey found that 43% of investors weren’t planning on making any large financial decisions until they believed COVID-19 to be contained. Now that this progressive containment is generally proving successful, albeit, with some local lockdowns enforced, it would make sense that such investors will gradually return to the market.

Although property specialists have obviously had to adjust their short-term forecasts in light of COVID-19, their long-term projections remain optimistic for property as an asset class. Savills, even during the height of lockdown, stood by their prediction that UK property prices would grow by 15% by 2024. With so many years of real estate experience, their continued backing of UK property as an asset class should not be taken lightly.

Ultimately, then, UK property looks set to continue to offer the security and returns investors are seeking during these uncertain and volatile times. Of course, a disastrous second spike of COVID-19 cases or any new, unforeseen economic consequences of the lockdown may potentially throw this recovery off course. However, as it currently stands, I remain optimistic for the future of UK property and firmly believe we’ll all soon be enjoying a resurgence in house prices sooner, rather than later.

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