REAL ESTATE RECOVERY

Burlingtons’ property expert Nicholas Portelli takes a look at what we can expect in a post-pandemic market

IN TRYING TO ANTICIPATE what Covid-19 might mean for the property market, we need to consider pentup demand among buyers, and price trends measured over a number of years. It is now six years since a new regime of stamp duty land tax (SDLT) was introduced and four years since the EU referendum. Both events had a considerable impact on the property market that can still be felt today.

If we were to go back further, to the global financial crisis of 2007-08, there is a pattern that begins to emerge. For the purposes of this analysis we will take a simplistic approach and consider two parts of the London property market: central and non-central London. Both follow the same trend but are driven by different factors. Demand for properties in noncentral London is more ‘need’ driven than in central London, while the latter is more dependant on international investors and money that are seeking long term capital preservation.

In times of crisis, central London property prices are immediately impacted because investors are generally quick to react to sudden market changes. We witnessed this back in 2007, when property prices in central London fell by 26% within a few months from the beginning of the crisis. The rest of London followed a similar pattern, although the drop was slightly less severe and more protracted. Consequently, as the world started to see signs of recovery, the more sophisticated investors acted ahead of the mainstream market. In fact, by January 2010, central London prices were back to their pre- 2007 levels and the rest of London got there some six to 12 months later.

This same trend was observed immediately after the December 2019 general elections. Once again it was central London where activity picked up first, with the rest of the capital following soon after. This quick recovery led to London’s average house price increase by 4.7% over the year to March 2020, amounting to the largest 12-month growth that we had seen since December 2016. »

Then the pandemic struck and, by mid-March, all but a few transactions froze across the entire country. Once the restrictions on UK property transactions were lifted on 13 May, the market started to pick up faster than expected. Leading estate agents reported a significant bounce in online property activity, with property portal Rightmove reporting that visits to its website had returned to pre-lockdown levels on the day the market reopened, with 5.2 million visitors. Rightmove figures also show that based on data from 7,000 deals agreed within the last month, vendors on average are securing 97.7% of their last advertised asking price.

This sentiment is being echoed by various market players we deal with on a daily basis. Our own experience is not dissimilar, having just paid very close to asking price for a house in Fulham that we managed to secure for a client, despite quite aggressive competition.

Just before the lifting of the restrictions, the general consensus among lenders and leading research houses was that property prices in London would fall by about 5-10% this year, and recover most, if not all, of that drop by the end of 2021. However, we are seeing that post-lockdown prices are rapidly getting firmer. The average discount to the asking price for sales outside London has been 2.6% since the market reopened on 13 May (compare that to 4% during the lockdown). In London, the average discount is wider but, still, it has narrowed from 6.4% during lockdown, to 3.9% post-lockdown.

These figures indicate that the post-pandemic environment is already being priced into the market. The question now, then, is how resilient will that demand be as the new economic landscape takes shape?

To answer this question, we also need to consider the next major issue, which is, of course, Brexit. While most are still adjusting to post-pandemic conditions, some are now turning their attention to what will inevitably be a difficult split from the EU. Political posturing will start all over again, bringing with it the usual dose of uncertainty that the market so dislikes. This time the impact may be less severe and possibly short-lived, because the market understands the general direction of travel in the Brexit question.

In times like these, it is all the more important to take a long-term view of the market and to seek independent professional advice. In spite of the challenges experienced in the last decade, London property prices have continued to provide investors with an average annual return of around 8% per annum. In some parts of London this return is closer to 12% per annum. So, we have good reason to be cautiously optimistic for the future.

Nicholas Portelli is Lead Property Consultant – Burlingtons Private Office. He is a graduate in finance and investments and former CEO of a financial services group of companies. Contact him via email: Nicholas.portelli@burlingtons.pro