As the residential property market sits in the wake of prolonged uncertainty from Brexit and the unprecedented blow of the Covid-19 pandemic, I hear many conversations that conclude London will never be able to recover and the population must be running for the hills (or the suburbs of nearby market towns).
Covid-19 has undoubtedly had a negative impact on city centres and none more apparent than London, exacerbated by its over-crowded public transport network that people are understandably reluctant to return to.
But I think there is more to this trend than initially meets the eye. Consulting the data issued by Savills on the return of the housing market since lockdown, although central London is showing signs of weakness, the suburbs of London have fared relatively well in recent months. And it seems to me that in the longer-term, London’s status as an international hub for travel, entertainment and culture will support its resiliency.
The major uncertainty remains the timing of this, as the pandemic is of course not over, but city-living will always offer a unique range of facilities and infrastructure that will prove resilient and attractive in the longer term. Of course, I acknowledge that remote working and significant time spent in the home in 2020 has led people to reassess what is important to them. And going forward, outdoor space and home office areas will be a compelling feature of any development. But I don’t see a world where the whole country moves to traditional housing in the suburbs and countryside.
Instead, there are some interesting trends that could accelerate. For instance, an increasing amount of city living may be rental in tenure and perhaps favoured by younger tenants wanting to live near others their age and make the most of the lifestyle benefits of being close to a range of facilities such as restaurants and bars.
In addition, the government has clearly prioritised the recovery of the housing market post-Covid with an extension of Help to Buy and temporary reliefs from SDLT to all buyers. This will especially favour the higher-priced London/South East England markets where a ‘discount’ of up to £15k is available to buyers of new and second-hand homes.
Where I would reserve more caution is in the parts of recent planning reform that are seeking to drive more conversions of office space into residential units. This part of so-called Permitted Development has seen some success, but with the potential for an increase in available office space, it may be questioned if more converted commercial buildings are the answer in regenerating areas of cities that were once thriving business hubs.
In our experience, the quality and suitability of these buildings to deliver low-cost housing and their longevity is questionable. This has been highlighted recently by mortgage lenders who are notably put off on exit.
So, on balance, whilst London may be seen as having the most to lose from the impact of Brexit and the pandemic, we believe that through watching market data and listening to the emerging trends, there is still a large amount of opportunity for lending to developers who are building appropriate property at the right price.
For Ingenious real estate investments, our focus remains on the quality of our loan book, working with experienced developers who we can trust to deliver projects in response to established demand.