It has been impossible to pick up a newspaper, turn on the radio/television or look at online news/social media without being bombarded by extremely repetitive commentary about Brexit and the adverse effects which it is having on our economy; and in the property press, the effects it is currently having upon the property market. Whilst it is undeniably true that virtually all sectors of the property market have started to show signs of a slowdown, the property market is extremely complex and is influenced by many factors, of which Brexit is only one.
During the past few years the property market, both for occupation and for investment purposes, has been extremely strong with yields/returns reaching the lowest levels that I have seen in my lifetime. This is of course at a time when returns from virtually all classes of investment have also been very low.
The first sector of the property market to show signs of slowing was perhaps residential, with the slowdown in the growth in capital values initially becoming apparent in central London, particularly with respect to higher priced units, but subsequently producing a ripple effect out into the South East. The most recent reports that I have seen suggest that capital values in Kensington and Chelsea, the most highly valued Borough in London, have fallen by an average of 21.2% over the past 12-months, whereas outside London and the South East values have continued to grow by an average of up to 6%. Nationwide Building Society reports that overall average growth across the UK in 2018 was just 0.5% down from 2.6% in 2017. In our experience, across Kent values have generally levelled off over recent months, with the slowdown being more pronounced – or felt earlier – the closer one gets to London.
As far as volumes are concerned, in recent months there has certainly been a reduction in demand and a slowdown in the numbers of properties being sold, albeit was recently reported that nationally the total number of sales in December at around 100,000 was very much in line with the long-term average.
Whilst the uncertainties caused by Brexit and the resultant paralysis of investment by businesses (leading to employment uncertainty), without doubt has been a contributory factor in the slowdown of the residential market, this would almost certainly have happened to some degree due to a natural cycle in the economy and the property market, both due for a downturn after a prolonged period of buoyancy.
Although values are likely to slide in the short term, we would not expect to see any dramatic changes, because availability of residential property will continue to be outstripped by demand, which in turn will largely underpin current values.
The principal factors affecting the private rented sector are government intervention. Tax changes over the past year or so have made the buy-to-rent sector far less attractive as an investment, particularly to small-scale investors with one or two properties where returns have often drifted into negative territory. This has resulted in a number of investors pulling out of the market and, as a consequence, the availability of rental properties has declined; a wholly predictable outcome at a time when everyone is highlighting the shortage of residential accommodation! This position is only likely to be exacerbated by the outlawing of tenant fees, which comes into force in June.
Outside London profit margins for residential letting/management agents who operate professionally and within the law are slim, so the abolition of these fees is likely to result in costs being passed to landlords, which in turn will lead to an increase in rent and/or more landlords pulling out of the private rented sector. This will almost certainly mean that tenants will have to pay more and have less choice. A prime example of a government ‘playing to gallery’ to achieve positive sound bites in the press, rather than making policy to improve the lot of the tenant!