“But, at the start of the year, a fresh wave of optimism fuelled by the post-election ‘Boris Bounce’ restored a certain level of confidence that 2020 would be comparatively smooth going.”
However, a few months in and the ‘Covid-19’ curveball took the industry by complete surprise, unexpectedly forcing a new phase in the market.
“Some eight weeks into the lockdown, this new reality still seems somewhat surreal,” he adds.
But what can be done by those whose livelihoods or businesses focus heavily on property investment? When would be a good time to start buying again? And, as some argue, is the market panic overblown?
The current climate
Selvanayagam says it’s seemingly inevitable that the crisis caused by Covid-19 is likely to result in a recession of some description – exacerbated in no small part by the levels of post-furlough unemployment, a huge budget deficit, widespread revenue losses and an ensuing drop of national GDP.
“Whilst QE injections (to the tune of £645 billion at the time of writing), ultra-low interest rates and bounce back loans have stemmed any catastrophic consequences, it remains difficult to gauge when and how the economy will recover.”
For the property market, Selvanayagam says new sales activity was severely restricted for much of the last quarter, with social distancing rules impeding the ‘face-to-face’ nature of business and much of the industry workforce furloughed.
“Many developments have had to be parked or significantly slowed due to the practical challenges of running construction sites during a pandemic like this and the current difficulty in transporting materials and equipment,” he says.
“Yet, whilst it was initially thought things would hit a wall, there have been some encouraging signs. There’s wide evidence, for example, that most buyers with agreed sales prior to the pandemic are moving forward with their purchases.”
Selvanayagam says Property Solvers – an estate agency which specialises in express house sales - has observed a noticeable uptick in enquiries fuelled by pent-up demand during the height of the lockdown.
“As the market finds its feet again, homebuyer surveys on empty properties are being executed, as are automated mortgage valuations (although acceptance varies from lender-to-lender),” he continues. “Virtual viewings are helping but unlikely to prompt serious offers. Nothing, it would seem, beats seeing properties ‘in the flesh’.”
In the lettings sector, he adds, serviced accommodation provision has taken a clear hit and rental income is likely to remain stagnant for the foreseeable future, but he argues that evidence points to things holding up reasonably well.
“From a broader perspective, the shape of what’s to come remains unknown,” Selvanayagam claims. “Debate over whether the traditional ‘boom-bust’ curve will be ‘V’, ‘U’ or even ‘L’-shaped is speculative at best. There’s even talk of a possible ‘W’ shaped recovery – should coronavirus have some kind of resurgence or relapse, perhaps triggered by the risks of asymptomatic spread.”
The general consensus, assuming the latter scenario doesn’t play out, is that the residential property market will begin to recover to some degree in the latter half of 2020, Selvanayagam says.
“However, the main house price indices the industry commonly refer to will remain skewed for the foreseeable future.”
Although government plans for contact tracing, a vaccine and other precision-controlled measures are in the pipeline, many questions remain around implementation. As a result, Selvanayagam argues, it is likely that both domestic and professional property buyers will be cautious and wait to see how things play out.
“Development work will probably pick up very gradually, as will the return of employees to offices and other workplaces – with the need to maintain social distancing still very real.”
He believes remote working options are likely to be favoured over in-person interactions, but says this isn’t necessarily a drawback, arguing that many property professionals already operate online in a significant capacity - placing them in a good position.
“Nonetheless, people will still need a place to live,” Selvanayagam says. “Some may simply want a change of scenery. It’s worth noting that, to a certain degree, long-term homebuyers look at things very differently to investors. Here, factors like affordability will come into play, taking into account the impact of Covid-19 on the jobs market and personal finances.”
The near future for professional property buyers
Property industry professionals will be keen to resume operations as quickly and effectively as possible, Selvanayagam insists. He also says buyers and sellers may feel under pressure to get chains moving.
“Mortgage lenders, whilst likely to take a slightly more cautious approach, are protected by relatively strong capital buffers which gives the industry more grounds for hope,” he adds. “Some have mooted that Permitted Development Rights (PDRs) may also be eased further as a means of encouraging the housing market to get back to a healthy pre-crisis state.”
Once the lockdown is fully lifted, the under-supply and pent-up demand could be encouraging for prices – particularly with interest rates so low and the confirmed resumption of Help to Buy. However, Selvanayagam warns, the state of unemployment and general health of the economy post-lockdown will be a major determining factor.
“Over the second half of the year, property auctions are likely to thrive, too, as buyers try to get a sense of when the market will bottom,” he advises. “Although caution needs to be taken with viewings and open days, the prominent operators have already been shifting their processes remotely using live streams.”
Where to invest?
Selvanayagam says that it is very likely that UK residents will emerge from lockdown into a very different environment.
“There are significant lessons to learn from this pandemic – something that will probably be reflected in our professional behaviour.”
He believes HMOs and buy-to-lets will still be in demand, but the individuals developing and managing them may need to take a number of matters into account. Living in close proximity is now less desirable than ever, and outdoor spaces are highly coveted. Meanwhile, hygiene is now vital.
“For the foreseeable future, more tenants may be working from home, which will mean that standards will have to be raised across the board,” Selvanayagam adds.
It’s possible that licencing requirements for student and HMO provision may undergo a revision – particularly when it comes to shared bathrooms and communal spaces.
As it stands, it’s likely that there will be a lower intake of overseas students within higher education facilities due to official travel restrictions as well as personal uncertainty.
“Individual holiday lets may drop in popularity, at least over this summer, with a growing preference for managed vacation properties that can be easily maintained – particularly in terms of hygiene,” Selvanayagam says.
“It is likely that holidaymakers will shun overseas properties, instead developing a preference for rental accommodation that they can reach by car without having to share a plane with other members of the public. This could put domestic providers in a strong position once the lockdown is over.”
Selvanayagam says that, in the position we are currently in, clarity is difficult to achieve. “It is very likely that the pace of investment, development and other work within the property industry will remain slow until a successful vaccine has been created,” he says.
Landlords may be the first to bear the brunt of the inevitable tax burden that will result as the government seeks to recoup the unprecedented injection of capital into the system. Time will tell, Selvanayagam qualifies.
In the meantime, he concludes, professionals in all sectors should keep up to date with new information provided by the government to see what work they are permitted to undertake and how it can be done safely.