The property market in England is beginning to reopen, with the government green-lighting its restart on May 13, but are investors champing at the bit ready to invest in new buy-to-let property?
We spoke to Del Huse, COO of Sourcing Investments, to find out more.
How is demand holding up?
"Throughout the Covid-19 lockdown, we’ve seen a huge increase in traffic to our property investment platform," Huse says.
"This may be because we’re marketing better these days, but of course it may just be that investors have had more time on their hands during lockdown to think about personal finances, or because they’ve noticed that their equity investments including pensions and ISAs have taken a beating."
He adds: "Perhaps they now want something different and to take some more control. However, for some of them we know it’s that they think that we’re on the cusp of a possible once-in-a-generation property investment opportunity – armed with access to the cheapest borrowing they’re ever likely to get, along with the prospect of falling property prices from motivated sellers."
Huse says we shouldn't over romanticise this, though. "Some of this 'opportunity' will be brought about by the challenges that Covid-19 has and will create for many people, which will be hard in many quarters. At the same time, for consumer investors, as always they need to look at the investment market in front of them to put their capital to work effectively (and in some cases try and recover their losses) – and investors need to tread with caution as much as ever, if not more."
He says that while it’s a well-worn cliché, it's also true that the only certainty at the moment is uncertainty. "As we head into a recession nobody knows with any great certainty what’s going to happen – you can be the finest economist on the planet right now, but these circumstances are unique, so you simply can’t tell the future," Huse explains.
"Sorry, but when I see that XY Estate Agents, or this bank or that building society are forecasting a blanket 7% downturn in property prices, or the doom-mongers saying 30%…I can’t help but think it’s a load of bunkum. Quite simply, nobody knows."
Huse insists that there's so much that feeds into property prices, let alone the rental prices: from classic supply and demand drivers, interest rates, consumer confidence, demographics, macro-economic growth, local micro economic factors, affordability, etc.
"The list goes on. When it comes to rental, there are more complications to consider," Huse believes. "Is the biggest employer in the area closed because of Covid-19 and perhaps even staying closed? Is your local economy focussed on the struggling hospitality sector? Is the rental opportunity in your area short-term accommodation for holidaymakers, and in this climate, could that potentially be good or bad?"
He says there are many factors to be considered, and so, when it comes to listening to cast-iron predictions and blanket forecasts from experts, we should all proceed with caution and consider the prospects of each project on its own merits.
"What we are seeing, at the coalface as it were, is really a polarisation," he goes on. "Broadly speaking, we can put investors who regularly work with us into two tribes. Firstly, the camp that believe there’s simply too much uncertainty to be able to invest. As a result, they’re going to sit on their hands and do nothing. They’ll wait and see what happens to the market before investing (or indeed invest their capital elsewhere)."
The other tribe, he says, are looking at the opportunity they see coming, and hoping or even expecting to combine cheap money with declining asset prices.
"There’s a high chance that there will be a pool of highly motivated sellers," Huse explains. "Asset sellers are likely to be motivated for a host of reasons: we are already seeing some landlords selling, for example, perhaps because of a hard time during Covid-19 – such as non-paying tenants, or perhaps because they can’t weather the storm that the lockdown has created and need the capital for other purposes."
Huse says it's more than likely that there going to be more twists and turns in the market yet. But, as always with property investment, he believes a longer-term view should be taken, with bricks and mortar remaining one of the preferred options for consumer investors, 'and with good reason'.
"As Franklin Roosevelt said: “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”
Advice for investors
"As a property investor myself, I’ve been wondering how the whole culture of buying, refurbing and letting properties might change post Covid-19," Huse says. "My honest, long-term view is that I don’t think it will particularly – at least not in any major sense."
Right now, he says, you can go and visit a property with an estate agent, albeit socially distanced. "This is going to be the same when the surveyors are sent in and so on, but so much is done online now, too. We have investors on our platform that don’t even set foot in the country, let alone in the target property."
He adds: "Construction will have its own guidelines, of course, which might slow down things, but most domestic refurbs only use small numbers of workers so social distancing feels fairly manageable."
In terms of his own deals, Huse is thinking about where the winners and losers might lie. "For example, I have no doubt the short-term accommodation market is going to see some changes," he says. "This market has been fuelled by the Airbnb phenomenon and has been a boom area for many property investors in recent years. But what’s the outlook now? Are people going to be less likely to want to go overseas with all the inherent risks? A boom in domestic holidaying coming?"
Or, he adds, is a recession going to depress room rates and occupancy levels? "I’ve been looking at some short-term accommodation investments myself, including a small hotel, and I am finding it almost impossible to judge right now. What I do know for sure is that where I was looking at a £600,000 outlay on a deal pre-Covid, it’s now closer to £400,000 on the same project which has been renegotiated."
"Sounds great on the face of it, but as I said we need to drill right down to every element of the project (and the forecast around income) to work out whether it is now a sound investment even after the reduction in price."
Overall, he concludes, there will always be sound property investments to be had, particularly for the patient investor.
"Ultimately we’re a small island, with relatively high population density and a housing problem – the fundamentals haven’t changed," he insists.
"There is going to be opportunity for people that want it. As far as Sourcing Investments goes, we’re still here to protect people in a largely unregulated market and provide line of sight to high-quality property investments."
*Founded in late 2015, Sourcing Investments describes itself as an online marketplace for safe and secure property investing. It aims to make the process of executing investments easier, more efficient, quicker and more secure.