Just when you thought the certainty of Brexit would boost the UK housing market, up steps Coronavirus. So how bad is coronavirus aka CO-VID 19 for a property market recovery in the UK? And how will other regions fair, e.g. real estate markets in the US, or Australia? In this article, we review what’s being reported in the media.
The Guardian warns the recent upbeat house prices for February 2020 may shrink back later in the year. The UK’s largest home loans lender, Halifax warns late in 2020 there may be a downturn in the economy, and that will impact on house prices due to economic pressures.
The UK doesn’t need yet another obstacle to economic recovery. The divorce from the EU is challenging enough, and now coronavirus could take whatever buyer confidence there is currently out of the market by the end of the year.
Now it’s Spring and typically the start of buoyant property sales activity, the next few months will be telling. Will sellers rush to get their homes sold? Will buyers push to commit to a mortgage taking advantage of low-interest rates, albeit in uncertain times?
Right now there are more questions than answers and experts short on definitive solutions are navel-gazing, and anything could happen. Forbes presents a couple of scenarios for real estate investors, the U-shaped recovery and the V-shaped recovery.
Just like the letter ‘V’, expect a sharp drop and a sharp rise, usually driven by consumer demand. Whatever caused the initial drop is remedied by a ‘cure’, e.g. economic stimulus or a vaccine.
A recession and recovery that’s U-shaped. You hit bottom and stay there for some time as a sort of plateau before recovery, which is gradual at first, commences. Once it reaches momentum, then the recovery is swift back to the peak before the drop.
A U shaped recovery is not considered severe, with a gradual drop and then an equally gradual rise, it’s more tolerable but takes more time. The coronavirus is expected to create a U-shaped recovery, and this is good for residential property investors.
Commercial vs Residential
In these uncertain times, Forbes says investing in residential real estate is more robust than commercial. If you consider the types of commercial property that are directly affected by the coronavirus, i.e. hotels, retail, offices, these assets are more risky for investors. Right now there is a lack of custom in travel, hospitality and events sectors due to travel bans, cancellations of room bookings and conferences.
More businesses are allowing and encouraging remote working, so working from home is on the rise. However, with confidence in markets all but flushed out, this makes owner-occupiers nervous and less inclined to commit to a large mortgage.
Less home buyer activity will lower sales prices, and that’s the cue for real estate investors. Low-interest rates, lower house prices, strong demand for rental properties are the conditions of a perfect storm for a property investor buying frenzy.
What we know with any type of investment is to expect the unexpected. Real estate investors, when they purchase a rental property, prepare for the worst-case scenario, i.e. a rise in borrowing costs like interest rates on home loans. They will offer 10 per cent or more below the asking price as a buffer and forego the deal if it doesn’t meet their requirements.
Investors may appear to have a higher risk tolerance than owner-occupiers however, their success is more often founded on sound judgement and timing in the property cycle.
Realestate.com.au reports a softening of buyer enquiry due to the shine coming off global markets.
While there has been a spike in offshore buyer enquiry particularly strong from Hong Kong and China in Sydney, there is a reluctance to let these buyers attend the open home viewings and their only option is using local representation to view on their behalf upping the risk as they are effectively buying a property they have not personally viewed. Where the Australian market will go is likely to depend on what happens elsewhere. Many local property investors will be cashed up and ready to buy from desperate vendors.
Coronavirus has prompted the Government to put a freeze on all rent increases and this is supported by the NZPIF and REINZ.
Tenants may also struggle to pay rent and Landlords’ only recourse is to contact their lender. With four weeks in lockdown underway, there will be no prospective rental property viewings and exiting tenants will remain. Landlords are in for a tough time and the recently announced end to the 90 days no-cause termination is just another negative message from the Government.
Back to the UK property market, coronavirus has many homebuyers putting their plans on hold with 17% already no longer keen on upgrading or jumping into the property market as first home buyers. If this trend continues, which it is predicted to do so within the coming months, investors are likely to see it as their time to add more properties to their rental portfolios.
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