As we enter a new year (and decade), the opening weeks of 2020 are an appropriate time to reflect on the state of the UK economy and map out the key political and economic events likely to shape the real estate market.
While it is difficult to predict exactly what lies on the horizon, evidence suggests 2020 could be more eventful than 2019. The Conservative manifesto has some clues, with greater investment in public services and the UK’s withdrawal from the EU featuring as two primary aims for Prime Minister Boris Johnson. For business leaders, and those involved in property, the latter will be vital in encouraging investment into bricks and mortar.
A recovering property market
We have already witnessed first-hand how Brexit uncertainty has affected the wider economy. For example, The Guardian reported last September that the pound sterling dropped to its lowest point in three years.
However, it is not just the value of the pound that has been affected by uncertainty. Nationwide estimates that by October of last year, prices had grown by under 1% for 11 consecutive months. Analysis suggests that since April 2019, uncertainty has reduced the cumulative worth of London property by more than £2 billion.
Thankfully, things are looking positive over the coming months. Whatever your political persuasion, a majority government is in power, thereby reducing the likelihood of an election and making it easier for new policy to be passed without undue delays. With political tension and fatigue reaching fever pitch over the festive period, this reprieve is likely a good thing for the country.
Investors turn to real estate in 2020
Whilst claiming a “Boris Bounce” may be going too far, there is a sense that 2020 will be smoother sailing for the property sector; Savills has predicted that the prime central London (PCL) market could be set to grow as much as 3% in the coming year. Indeed, such growth can be attributed to investor demand.
In 2019, Butterfield Mortgages Limited (BML) surveyed a sample of investors to uncover their sentiment towards property. The BML research revealed that some 61% of investors believe traditional assets like property are best positioned to deliver stable and secure returns during the current political uncertainty. A fifth (20%) said they plan to increase the amount of money they have invested in real estate in 2020.
Growth such as this would be excellent news, and not just for those in London. More transactions taking place at the top of the market should be complimented by the modest growth that the rest of the country enjoyed last year, with the upshot being improved market liquidity. In turn, this ensures there are more real estate opportunities available for domestic and international investors alike.
Managing foreign investment into the UK
The weakened pound has meant that non-UK residents are enjoying greater purchasing power than might have been the case pre-referendum. Many of those looking to purchase a UK-based property may be looking to take advantage of this current climate.
The aforementioned BML survey revealed that 57% of UK-based investors believe that foreign buyers investing in the country’s real estate are vital to the economy, but want restrictions on their activity. This requires delicate and balanced policy, something we could see as part of the upcoming budget. During the election campaign, Prime Minister Boris Johnson touted a new 3% surcharge on foreign nationals purchasing property. It remains to be seen how and when such a policy will be implemented.
It would be naïve to be purely optimistic about 2020; risks still exist for the UK property market. Firstly, Brexit is still ongoing. The process is long and amounts to one of the largest diplomatic tasks ever undertaken. Understanding that setbacks are still possible, despite Prime Minister Boris Johnson’s majority, is important. Similarly, there is no guarantee that a disorderly, no-deal Brexit is completely off the table.
However, at this point, it appears highly unlikely.
A cause for optimism
2020 looks set to be a strong year for the property sector, with renewed healthy growth forecasts already creating a buoyant narrative. As ever, there are risks, but with a majority government in power providing consistency, these seem to be less concerning than the cliff-edges of 2019. I now look forward to seeing the government addressing the challenges facing the property market, ensuring that investors and homebuyers are in a position to readily access new opportunities, in turn encouraging the growth of the sector.
Alpa Bhakta is the CEO of Butterfield Mortgages Limited – a prime property mortgage provider. She has more than 20 years’ experience in the world of high net worth (HNW) property finance in the UK.