The consensus among economic experts and forecasters is that the disruption caused by the coronavirus will be relatively short-lived. Whilst there is no doubt that the pandemic will affect all aspects of the property market there is a strong belief that this pause will only have a limited impact.
Economic forecasters are largely united in their predictions that Covid-19 will cause a sharp but short decline from March 2020 and during the period of lockdown, then see a rebound in the latter part of the year and early 2021. Recent predictions from global forecasting and quantitative analysis experts, Oxford Economics, expect a fall in UK GDP of -2.5% in Q2 2020 followed by a rebound at +1.8% in Q4 2020.
Table 1 – Economic forecasts as at 19 March 2020
|Real GDP growth
|Average bank base
Source: Oxford Economics
Residential property transactions
The property market has, for the most part, been placed into a forced shut down with the government proposing a ‘pause’ in peoples’ plans to move during the pandemic, as a knock-on effect it’s highly likely that transaction levels will see a steep fall over the next few months.
This suppression of activity in the market will cause a build-up of latent demand. In China, transaction levels dropped to zero for a 3 week period following the restrictions to peoples movements in place there but just a few months on the property transactions have returned to around 50% of the four-year average.
Driven by the political certainty following the decisive conservative win in the general election, the HMRC recorded that residential transaction levels had been higher in the first two months of 2020 than the same period over the past 3 years – whilst the figures released in the coming weeks are likely to show a steep fall in transactions it should be interpreted against the especially strong start to the year.
Based on forecasters predictions of a fairly quick turnaround in economic recovery it’s expected that the effect on property prices will be limited. As confidence returns to the market, Brexit uncertainty will still be present and may slow down the recovery from the later part of 2020.
Buyers who are in a strong and stable position will be able to take advantage of the historically low-interest rates, contributing to the expected price growth bounce.
Professionals predict that the five-year outlook for UK property price growth will remain to be similar to the figures set out in November 2019, simply with a different distribution of growth across the years.
Since there are currently practical constraints on people’s ability to view properties and move under the present restrictions there is undoubtedly going to be less movement in the rental markets.
For the majority of households in privately rented accommodation, rental payments will continue as normal during this period with no significant impact expected on rental values.
As the coronavirus is likely to impact income growth for the remained of 2020 it is expected that rental value growth will also slow, the two tend to move in correlation. Whilst there might be a slower rate over the next year, it is anticipated that rental price growth will accelerate as income growth returns.
Construction and development
Some housebuilders have now suspended construction on their sites and it is expected that the rest of the industry will follow suit, this will result in a delay in the delivery of projects and the completion of new-build sales.
There is the potential for housebuilders to return to using buyer incentives to drive sales when the restrictions on doing business are lifted in order to maintain their cash flow to meet their funding commitments. This remains to be seen as the shorter the period of ‘pause’ the less disruption to the industry meaning business will return to relative normality sooner and require less of an incentivised boost.
Ultimately housebuilders plan many years in advance and will continue to plan their output factoring in this period of restricted activity as a road bump; the general consensus across the industry is that it is not a cause for serious concern.
UK property investment in 2020
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