Charles Ellingworth

09:37

Property in a Coronavirus world

It has been almost impossible to comment on the property market over the last six weeks - not least because it would seem like musings from another world when confronted with the reality of the Coronavirus epidemic. To get the tone right would be difficult - even if anyone was interested. Our sense, though, is that things have moved on lately, as the form and impact of the virus has become clearer and people are looking beyond the lockdown to a world that will have changed. How much and where are the questions now being asked.


That the economy will take a huge hit is beyond debate, as is the reality that many more will get infected and die before life goes back to anything that we would think of as normal. For the economy, the outcome is going to be different depending on where you make your living. Food retailers and Amazon are going to knock it out of the park while restaurants and airlines will be looking at survival as a good result - but everyone’s taxes will be higher and pensions reduced. 


In our corner of the residential market, agents are beginning to try and shine optimism on this grim prospect with talk of V shaped recovery and a backlog of demand that will push turnover and prices higher once it is unleashed. Maybe it will - but the likely staggered nature of any release from lockdown and the inevitability of many buyers, and particularly older sellers, having to continue with isolation makes some sort of U shaped recovery more likely. Implicit in the V shaped hope is that there had been a rudely-interrupted booming market in January - which was not quite the universe that we were inhabiting then.


So what was the residential  market looking like before it was so suddenly shuttered? There was much talk of a  Boris Bounce in the slipstream of the election and tales of multiple record-breaking deals in December and January after the long hiatus when buyers had lain low in fear of a Corbyn government. Our observation was that it was more prosaic. What did surprise us was the number of  deals we did before the election - one client exchanging on a substantial house on Election Day itself. Some would say that showed substantial ‘cojones’ - but actually it was a cool appraisal of the likely outcome, where they took the view that this was the point of maximum weakness to be exploited. Good for them. 


There was a bounce - but off a market that has been pretty thin for a long time and much less than was being boasted about on Twitter. It was Knight Frank who poured the cold water on the hot talk with their report at the beginning of the year. Business was better, they said, but this was no off-to-the-races moment. None of this should be too surprising, as the grit in the market mechanism of elevated stamp-duty is still there and, as most sellers are buyers, the cost of buying and selling remains penal. It only got worse in the Budget with an additional 2% charge for foreign buyers - though this isn’t due to bite until 2021. 


As ever, there was a marked difference between quality and the rest. For the quality, there was no shortage of buyers but the supply remained thin. For the rest, it was the obverse. This situation is unlikely to be that different when the market eventually reopens. A crisis like this always brings out  bottom-fishers looking for a deal, but in our view, they are not going to find many quality-items with a fire-sale price tag. Down the quality scale it may be different - but that isn’t our market. Supply is going to be an issue whatever the demand.


It’s the same in the commercial world. Much of the pre-COVID supply of the stuff that investors want - prime offices, hotels and distribution - has been snapped up during the lock-down period. The cupboard is pretty bare. A prime, but hardly typical, example is the Ritz Hotel, offloaded by the Berkeley family to a Qatari buyer for an eye-watering £6m per room. The nearest remotely comparable sale is £1.5m per room. At the other end of the scale, the stresses caused by the virus have accentuated problems that were already obvious in leisure and retail especially as the June rent day approaches. Even if valuations are on the floor, it will be a brave investor that takes advantage of them.


If you had to pick residential winners, then the lockdown must have hardened any decision to move to the country or to a bigger garden. Communal gardens must surely be in even more demand than usual, particularly if there are waves of lockdowns. International travel is not going to return to normal any time soon, so any market where international buyers predominate is likely to take longer to find its feet. 


In the commercial world, where  the trend towards online shopping has been accelerated by the epidemic, the demand for distribution sheds is only going one way and, despite  the trend towards home-working, offices in areas where supply is constrained will still be popular - think Mayfair. The same can’t be said for the back up ‘disaster office’ in a tertiary location. Who will need that now?


Is there any market at the moment? Yes, in the sense that deals already agreed are going through. No, in the sense that face-to-face meetings and spending time looking round houses is not happening. No surprises here. It’s the same the world over - but as they are already experiencing in Hong Kong, life is beginning to return to a sort of normal and we, in the same hesitant way, will likely move in that direction as the summer progresses. 


It is a summer where July and August probably won’t see the usual closedown and where everyone that can will try to make up lost ground. Is the demand going to be there after the economic mayhem? Probably - but it won’t be even and banks are bound to be cautious. Hopefully there will be enough going on to ensure more than just survival, but to believe in some sort of boom is to believe in Father Christmas.


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