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CORONAVIRUS UPDATE

See the latest Coronavirus statistics from across the world on our world map SEE MAP UK Confirmed cases: 274,762 | UK Deaths: 38,489 SEE MAP Italy Confirmed cases: 232,997 | Italy Deaths: 33,415 | Italy Recovered: 157,507 SEE MAP Spain Confirmed cases: 239,479 | Spain Deaths: 27,127 | Spain Recovered: 150,376 SEE MAP See the latest Coronavirus statistics from across the world on our world map SEE MAP UK Confirmed cases: 274,762 | UK Deaths: 38,489 SEE MAP Italy Confirmed cases: 232,997 | Italy Deaths: 33,415 | Italy Recovered: 157,507 SEE MAP Spain Confirmed cases: 239,479 | Spain Deaths: 27,127 | Spain Recovered: 150,376 SEE MAP

TODAY'S OTHER NEWS

Now is not the time to shake-up real estate

It has been well over a month since the UK government first announced social distancing measures in response to Covid-19. At the time, Prime Minister Boris Johnson indicated that these measures would be enforced for an initial three-week period – they have since been extended to May 7.

Both in the lead-up to and during the lockdown period, the government has been announcing financial relief packages targeting those adversely affected by the virus. Homeowners and buy-to-let landlords are able to apply for a three-month mortgage payment holiday, while a range of support measures have been made available for large companies through to startups and the self-employed.

At the moment, it is difficult to predict when the Covid-19 pandemic will be contained. The situation is changing on a daily basis and, while the number of daily cases and fatalities is beginning to plateau, there is nothing to suggest a second increase is off the table.

This has financial commentators worried, particularly where the property market is concerned. For prospective buyers, the process of finding a property and applying for a mortgage to complete the transaction is marred with uncertainty. Some of the big banks have put a temporary freeze on their services while sellers are taking their homes off the market.

Now, new industry figures have confirmed the impact self-distancing is having on demand for bricks and mortar. Rightmove has confirmed that the average UK property price dropped by 0.2% in April. Upcoming indexes from Halifax and Nationwide are likely to show a similar decline.

Of course, one needs to understand the bigger picture here – house prices are dropping not because buyers aren’t interested in UK real estate anymore. That would contradict the surge in activity witnessed at the beginning of the year.

In reality, prices are dropping because buyers simply cannot act on their property intentions at the moment. The market is coming to a standstill as a result of new conditions beyond its control.

Spurring real estate investment post-Covid-19

The big question on everyone’s mind is whether demand will return to the property market once social distancing has been lifted. Will pent-up demand result in buyers and sellers rushing to return to the market?

At this point, it is difficult to tell. Buyers could be initially hesitant and wait until the market regains strength before considering a new transaction.

Recent reports show that house prices are likely to fall over the coming 12 months as a result of declining sales and a perceived lack of buyer/seller confidence. Knight Frank anticipates that over half a million home sales will be lost as a result of the crisis.  

For this reason, industry bodies like the RICS and NFB are advocating for a stamp duty holiday. This means that buyers would be exempt from paying the tax once a transaction is completed, offering an added incentive for buyers to take advantage of the relief should it be introduced once lockdown measures are lifted.

What’s more, advocates are confident it would have a positive effect. During the 1992 downturn, the introduction of a stamp duty holiday doubled the number of home sales. A similar result was witnessed in the aftermath of the 2008 financial crisis. 

Of course, any such reform would need to be carefully considered and implemented. For example, the government would need to determine when the relief would be introduced and how long it will last for. Would a stamp duty holiday apply during lockdown measures if lockdown measures are still in place? And would the holiday be applicable to all buyers?

Reform is needed, but is now the time? 

Stamp duty is a controversial tax. During the 2019 general election, the Conservative party touted a number of bold reforms that would radically transform who would be liable to pay the tax.

The 2020 Spring Budget in March was originally set to be the government’s opportunity to unveil these reforms. Covid-19 ultimately changed all this, and while a change was announced for international buyers of UK real estate (a 2% surcharge on transactions come April 2021), stamp duty was largely put to one side.

The government plans to announce a second budget in Autumn 2020. At the moment, it seems Chancellor Rishi Sunak will use this as an opportunity to unveil what was originally touted for March.

However, with ongoing announcements of financial relief packages to support those affected by Covid-19 and talk of social distancing measures being in force for the rest of the year, this budget could once again focus on the pandemic.

For now, it is very much a waiting game. The situation is changing on a daily basis. The government will no doubt consider a new round of relief packages to support businesses, consumers and investors, and we could see an extension of the mortgage payment holiday as part of this.

I am confident that the real estate market will quickly recover from the initial shock of Covid-19. Stamp duty can indeed deter buyers from acting on their property investment intentions, but rather than introducing temporary measures, I am in favour of permanent reforms. At the moment, the 2020 Autumn Budget is the opportune moment to do so.  

*Jamie Johnson is the CEO of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development projects.

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