THE PANDEMIC'S IMPACT ON PROPERTY
Following a year like no other, key residential property markets have yielded an unexpectedly robust performance. We sat down with Tim Hyatt, Head of Residential, and Paddy Dring, Global Head of Prime Sales, to ask four key questions that go some way to explain the market’s unprecedented behaviour, and what we can expect from the future.
The residential property market has defied a lot of expectations and remained incredibly buoyant over the past 12 months. What is the reason behind this?
TH: Put simply, global governments responded to the pandemic by cutting interest rates and injecting more stimulus into the economy, particularly in the form of the stamp duty holiday which acted as a market-wide trigger, all of which fed through to lower mortgage rates which have supported demand.
At the same time the search for space and privacy occasioned by Covid-19 has increased demand for country and suburban markets – but also led to people wanting to upsize in urban areas.
PD: It’s also worth mentioning that the major changes to commuting patterns and working arrangements super-charged demand for property in many of our key markets. There are many different factors that have come into play over the past year, all of which have been, to a lesser or greater extent, a result of the pandemic. It’s proven to be the perfect combination for a buoyant and demand-heavy residential market.
From the ‘new normal’ to living with Covid-19, there’s a lot of speculation regarding the future. In terms of what we have seen emerge in the residential market over the past year, which changes and trends will endure?
TH: It’s difficult for anyone to say with any certainty which trends that we have seen over the last year will stick, or whether they simply brought forward purchase activity which would have happened anyway. In many ways, Covid-19 certainly has acted as a catalyst for trends that were beginning to creep into everyday life, such as working from home and in turn, the importance of good and reliable digital technology. For that particular example, I think it is clear that for many people there is an expectation that home working will increase to some extent and this will make people value space over proximity to work, so it is likely that larger homes slightly further away from the office could be in demand for the long term. Indeed, the country market has had its strongest performance ever over the past 12-months, with very strong levels of sales and a very buoyant market. In terms of house price growth, our forecast for the next five years shows a cumulative rise of 25% for Prime Central London and 17% for the rest of the UK by 2025.
At the same time the search for space and privacy occasioned by Covid-19 has increased demand for country and suburban markets – but also led to people wanting to upsize in urban areas.
Currency particularly holds the key to value in terms of global property investment currently. Can you give an example of this?
PD: The London market has been the classic currency play for the past five years. The market saw considerable savings after the pound fell with the surprise result of the 2016 EU referendum, together with tax induced price falls meant London was trading at a 40% discount to its 2014 peak last year for dollar buyers.
The strengthening of sterling since the formal exit of the UK from the EU and the boost to the UK’s economy from the strong vaccine roll-out means that the window for foreign buyers to capitalise on this trend is closing – we definitely expect strong overseas demand for London property through 2021. Equally with a stronger pound, it is an ideal time for British buyers (or should we say those investing with sterling) looking to invest in or acquire their dream home abroad, whether in Europe, the US, or further afield – travel restrictions permitting. And finally, what are the main indicators to monitor in terms of the health of the global residential market moving forwards?
PD: The most important issue for all markets is sustainability of demand and pricing. A rapid growth in either tends to end in tears. The recent acceleration in price growth in markets like New Zealand and the US is a reflection of strong demand, limited supply and cheap debt – the risk is a heavy government response to try to cool and control markets.
TH: I agree with Paddy, but people should take comfort in the fact that we are certainly in a better place than we were in 2007. Governments learnt lessons then, and even with recent price growth, borrowers are not able to overextend themselves in the way that was permitted prior to the global financial crisis. One key piece of advice would be to watch affordability metrics closely as the best guide to whether markets are becoming unsustainable.