Yesterday’s bleak news from the government revealing a 20.4% dip in GDP across the UK came as a hammer blow to the property industry optimists who had hoped for better news from the economy.
But dig deeper into the headline figure and a more varied picture emerges, including that sales and lettings agents have largely swerved the worst of the downturn so far – the ONS figures show a 3.2% decline for the industry.
This is a mere flesh wound compared to the accommodation and food services sector, which experienced an 86.7% decline.
The figures also reveal that most of the downturn took place during April, immediately after lockdown began, and that the economy has begun to bounce back, albeit with the help of Rishi Sunak’s furlough billions.
Savills has told The Negotiator that the nature of wealth in the UK, the recent Stamp Duty changes and narrowing mortgage availability mean that a two-tier sales market is likely to emerge.
The agency has already seen rocketing activity for sales subject to contract above £300,000 and £500,000, but a much slower recovery in properties under £300,000.
“The difference between this recession and previous recessions is that before, there has been some sort of fundamental problem with the economy that delivered a shock but this time that shock has been lockdown, so we’re likely to see a faster recovering than we have following other economic shocks,” says Lawrence Bowles (left), a director of Savills’ residential research team.
“House prices will be driven down as the ensuring economic weakness reduces confidence and raises unemployment, which will last until the tail end of 2021.”
Trevor Abrahmsohn, MD of Glentree Estates
“I’ve been through four recessions so you could say I’ve been there and got the property industry T-shirt, but I think this one is quite different to the others – before Covid borrowings were not off the chart, economic growth was healthy, and both unemployment and inflation were low, unlike during previous recessions during the financial crisis, late 80s/90s crash and the 70s downturn,” he says.
“But this situation has come about so quickly and violently that many people just don’t think it’s real, and are still coming to the market; we’ve been experiencing gazumping in our market as well as bidding wars – one house on Billionaire’s Row sold for 50% more than our estimate.”
Nick Leeming, Chairman of Jackson-Stops
“The property market has proved resilient post the market reopening in May and buyer confidence is still high. As soon as estate agents were given the green light to return to work we saw the pent-up demand from when the market was closed translate almost immediately into sales. This, combined with the stamp duty holiday and many buyers wanting more space in their homes following the lockdown, is causing a spike in transactions across our network. Whilst today’s figures are bleak, even if in line with expectations, this sentiment is certainly not translating into the housing market.
Mark Homer of Progressive Property
“Evidence derived from the 850 tenants we manage in houses through Progressive Lets has shown lettings demand has remained strong with rent collected only down by around 4% on the same period in 2019,” he says.
“Sites prime for house building are still selling well to smaller builders but with less activity from the large PLC house builders. Construction sites are nearly all back up and running again post lockdown with only 5% remaining shuttered.”
Matthew Fawl, MD at Alesco Investment Properties.
“Property, as a long term physical asset will not mirror changes in output of goods and services in any given quarter, but to protect the UK housing market in the long run we can’t emphasise enough the need of a return to normality for the young working people of the UK,” he says.
Tom Mundy, Goodlord
“Since lockdown was lifted, the rental market has been incredibly busy. With the economy now in recession and people’s circumstances shifting, we expect lettings to continue to buoy up the sector – something we saw throughout 2008 and 2009,” he says.
“Despite a brief flurry of property purchases thanks to the stamp duty holiday, most Brits will remain cautious about taking on a mortgage in a time of high unemployment. Instead, we’re seeing new tenancies being signed at higher than 2019 levels.”
Sean Hooker, Head of Redress, PRS
“The economic climate could be tough on existing landlords and property investors, with rents likely to fall as unemployment rises and wages are squeezed,” he says.
“Mortgage lenders will be cautious as they readjust their future forecasts and affordability criteria.
“A good number of current landlords may decide it is too hot in the kitchen and exit.
“I predict there will be a queue of new investors in line, who are unencumbered by legacy issues and who can adjust to the new climate and make money.”
Fraser Johns of developer Beard
“While undoubtedly welcome, a second consecutive month of rapid growth, with construction output in June up 23.5% compared to May, cannot obscure the low base from which that starts.
“Over Q2 as a whole, output has fallen by more than a third (35%) and remains down by about a quarter (24.8%) on its pre-coronavirus levels in February.
“The construction industry needs to focus on delivering for its customers and demonstrating the value high-quality building can bring. But to get back on its feet, it needs new work.”