Unsurprisingly, we’ve received an enormous volume of emails and messages asking what effect the Coronavirus (COVID-19) will have on the property market. Obviously we can’t know for sure, but we’re already picking up on patterns based on the large numbers of investors and property industry insiders we’ve been speaking to over the last couple of weeks.
In this article we’ll explore the likely short-term effects of the Coronavirus on the property market – and what this means for you depending on whether you’re buying now, considering it, trying to rent a property out, or trying to sell.
Some buyers will pull out, and few new sellers will emerge
Some buyers will back out of already agreed purchases, either because they’re newly nervous about their job or just generally fearful.
And very little new property will come to the market – because who wants to invite strangers to wander around their house at the moment?
Transactions will grind to (even more of) a halt
Conveyancing – not known for being a blink-and-you’ll-miss-it event – will likely take even longer for the next few months, as solicitors adapt to working from home. Given that it’s (generally speaking) not the most tech-forward of industries, the transition isn’t likely to be seamless.
So if you have a transaction going through, prepare for it to take a while. But that might not be a bad thing, because…
Letting properties will be challenging
In times of uncertainty, the status quo tends to prevail – so moving house isn’t going to be high on agendas for a little while. On top of that, people will naturally be wary about venturing out for viewings.
If you have a vacant property, it’s worth considering cutting the rent to get someone in: over a year, even a 25% rent cut today will leave you in the same position as having an empty property for three months.
The flipside of this is if you have a property that’s currently occupied, your tenants are unlikely to give notice until things get back closer to normal – unless they’re brave and sense the opportunity to lock in a bargain elsewhere.
Arrears might increase
Roughly a third of renters can’t cover even a single month’s rent from savings. It’s therefore highly likely that landlords will, on the whole, see a higher level of arrears as some tenants have their income streams affected. The extent of this will depend on the scale and effectiveness of the measures the government puts in place to support businesses and individuals through the crisis.
This shows the importance of having a portfolio that’s robust against temporary losses of income – either in the form of Rent Guarantee Insurance or holding an adequate cash reserve.
Holiday Lets will be severely affected
Leisure and business bookings will vanish, putting the owners of serviced accommodation under strain. It’s possible that rural locations attracting “staycation” travellers might be less severely hit as people look for somewhere to escape to, but anyone relying on overseas visitors or business travellers will have a difficult few months.
We’ll be tackling this subject in detail soon. In the meantime, Savills’ views align closely with our own: basically, that demand should return relatively quickly and prices won’t be affected. Asset prices will also get a boost from the recent slashing of the Bank of England base rate.
If you’ve already agreed a purchase…
If you’re progressing with a long-term buy-to-let purchase, we don’t see any reason to be concerned. As covered above, experts don’t currently believe house prices will fall as a result of the Coronavirus crisis.
Could you pull out and find an opportunistic bargain elsewhere? Possibly – although this needs to be weighed up against the time and money you’ve already committed to your current deal.
You do need to bear in mind that it might be harder than usual to let the property initially, so allow for that in your purchase finances and not stretch yourself too much.
If you’re buying a property to flip, there’s more to think about. Nobody knows how long the market will be affected by the Coronavirus – so it’s possible that activity will be back to normal by the time you’re ready to put it back on the market, but you can’t know for sure. We’d be looking carefully at the purchase if the profit margin is tight, and checking whether renting the property out (if necessary) would cover costs while waiting for the market to return.
If you’re marketing a property for sale…
Expect viewings to drop dramatically, and for any potential buyers to make low offers. Depending on how important it is to sell, you might consider taking it off the market temporarily or marketing it both for sale and to let.
If you’re looking for a property to buy…
Although there will be fewer properties on the market to choose from, being a buyer puts you in a good position – because there will be some people who need to sell and will be far more minded to accept low offers than they were a couple of weeks ago.
We’re seeing this at Property Hub Invest with the developers we work with: they’re agreeing to deals and discounts they wouldn’t previously have considered, because they know they won’t hit their sales targets otherwise.
We’re taking advantage of the situation by negotiating hard, and you can do the same!