As the number of cases falls and social distancing measures are relaxed, there is a palpable sense that we are entering a new phase of the coronavirus pandemic. There is a risk, of course, that as the lockdown restrictions become less severe, the UK will see another spike in infections. However, for now, there is optimism that we are on the road to recovery.
Of course, regardless of whether there is a second spike, it would be wrong to assume that things will simply go back to the way they were at the beginning of the year. The term “new normal” is being used to describe the lasting impact the pandemic will have on society. The property sector is no exception.
Since 13 May, the easing of social distancing measures has ensured renters and buyers can once again move property. At the same time, lenders have been able to undertake onsite valuations. Demand and activity are both returning to the market, though it will be sometime before we see transaction figures reach their pre-coronavirus levels.
That said, it will be interesting to observe the prime central London (PCL) market in the second half of 2020. In the first 11 weeks of the year, there was a 30%increase in the number of property sales worth over £1 million taking place in the capital, when compared with the same period in 2019. The question now is whether this momentum will return as lockdown measures are relaxed over the coming months.
The coming months
In the immediate future, we should expect a period of readjustment. When it comes to PCL real estate, the gap between asking prices and exchange prices has been widening as a result of the current pandemic. According to Knight Frank, the average sale price in April was 94% of the original asking price, which was down 3% from the start of the year.
As transactions have slowed, it has become increasingly difficult to accurately establish the market value of residential and commercial real estate, which can cause issues for both buyers and sellers. The Royal Institution of Chartered Surveyors, for example, began including an uncertainty clause in its valuation reports to acknowledge the uncertainty brought on by COVID-19.
Things may now be more certain as social distancing is lifted, but I anticipate a stand-off between buyers and sellers when it comes to property prices. Put simply, some buyers will seek to capitalise on the current situation by offering lower exchange prices in the hope that sellers will eventually give in. This will lead to price recovery delays in the short term; however, I believe this will be eventually corrected as more buyers return to the property market.
The big question is not ifthis correction will occur, but when.
For me, I expect price movements will be slow, at least in the coming months. Valuators need to put in place measures that adhere to the ever-changing government advice on social distancing. At the same time, the backlog of valuations that have been building up since the middle of March will need to be cleared. Only then will we see greater parity between selling prices and exchange prices for PCL real estate.
Will international buyers return?
Any discussion of prime property in the capital must take into account the role of international buyers. After all, they are responsible for 55% of all the PCL transactions. The practical implications of social distancing, however, means that international buyers are not in a position to visit the UK and view new properties.
For sellers of prime property, this will no doubt be a source for concern. With a significant proportion of people facing challenges (physically) accessing the market, we could see sellers listing properties at lower prices to attract buyers. Add to this the fluctuating value of the pound sterling and suddenly now could be an ideal opening for overseas buyers seeking to take advantage of discounted PCL property.
We should not forget that in April 2021, international buyers will be subject to an additional 2% Stamp Duty Land Tax surcharge. As such, there is good reason to anticipate a rise in sales taking place by non-UK residents prior to the beginning of the 2021/22 tax year.
The new normal
Regardless of industry or sector, the coronavirus pandemic has transformed the way firms operate. Here in the financial services, we have seen the extent to which certain tasks and processes can be completed online. The notion of a traditional office space will never be the same, and I anticipate drastic changes to the commercial property market.
While the connection might not seem immediately apparent, this could have significant ramifications for PCL’s buy-to-let market. Will senior international, corporate personnel—those who make up a significant proportion of prime property renters—return to the capital? Or will businesses invest in their digital infrastructure and subsequently downsize their physical presence in some locations?
It’s questions like these which are difficult to answer. As a more general point, however, once buyer confidence returns and pent-up demand is released, we are likely to see a flurry of activity in the PCL market. The challenge for lenders, valuators and agents is to ensure they are prepared for the new normal, whatever that may look like.
