Market Update, from Citydeal Estates
We hope you and your loved ones are keeping safe and well. In this residential and commercial market overview we provide you with the latest real estate update during Coronavirus crisis.
The political certainty provided by last December’s general election boosted housing market confidence during January and February. A sharp uptick in sales and a stronger market growth was seen across the UK with more positive trends expected to have continued through 2020. However, the arrival of Covid-19 put this recovery on hold with the housing market now being in what could be described as a state of suspended animation.
Firstly, despite an increased focus on offering buyers video tours of homes for sale the survey published by the Royal Institution of Chartered Surveyors (RICS) showed that both new buyer enquiries and new instructions had fallen significantly in the second half of March. In February, according to the survey evidence, the reading for new buyer enquiries was +17% while the figure for new instructions was +11%. In the space of a month those readings fell dramatically to -74% and -72% respectively.
Similarly, Zoopla reported that the number of newly agreed sales has fallen by 70% since the coronavirus restrictions were put in place on 23 March (with the number of new enquiries falling by 60 per cent).
At the same time Rightmove found that the total available number of homes for sale has fallen only by 2.6% since lockdown. Some indication of relative resilience also comes from the deals that were already underway when the pandemic crisis began and are still progressing even though with delayed completions.
New transactions, however, are severally limited in numbers. This indicates that we are moving into a period of low transactions during the traditionally busy spring market. This will place greater emphasis on an autumn market, when we expect to have a clearer picture on the longer-term impact on buyer sentiment
Savills currently anticipate transactions in 2020 to fall to 20%-40% of the five-year average, and recover to 60%-80% of this by January 2021. This general view is shared by respondents to the RICS survey, 88% of whom said they expected a fall in sales volumes over the next three months, but only 60% of whom expected a fall over the next 12 months.
Major auctioneers held online only auctions for the first time. Many properties were withdrawn and many reserve prices were not met however, bidding levels were strong as buyers were keen to see what was happening online. For properties that were sold to the highest bidder, discounts of 10% were common.
In relation to the prices with the market largely on hold evidence of the pricing impact of Covid-19 will remain sparse in the near-term. While some predict the mainstream UK house prices to fall by 3% in 2020 this is only likely to become clear as we come out of the lockdown and transaction levels start to pick up. In the meantime, we agree with the advice given to the sellers to remain pragmatic on pricing as demand becomes more dependent on needs-based and opportunistic buyers.
The rental market is subject to the same government Covid-19 restrictions as the sales market. Therefore, while the tenant demand was more or less stable in the three months to March, we are now in a period of low transactional activity.
Despite the fact that the living sectors are generally viewed to be more resilient in the face of a downturn the different sub-sectors have very different characteristics. For example, while multifamily is usually considered to be the most resilient sector and this is being supported by various income-protection schemes, the decline in international student intakes poses a risk to the student housing market come the Autumn semester. In the co-living sector, platforms that derive more income from corporate workers and longer-term residents are better protected than those oriented toward more mobile, short-term residents.
New lettings: We are working to ensure that all enquiries are dealt with without any delay by keeping all our phone lines open and also offering video viewings.
Even though the virus outbreak will have a significant negative influence on near term rental growth projections, we still expect the demand to resume. As soon as the lockdown is softened tenants with stable incomes will still need to move. The current crisis is not the same as the one in 2008; this time the government is stopping tenants from moving. It is not the case that the tenants are unable to move. The market demand is building up and all the indicators suggest that the market will bounce back.
The recent data published by Yomdel Property Sentiment Tracker (YPST) has already suggested that for the week ending 19 April new enquiries were up strongly across the board signalling that pressure from pent up demand for home moving services was pushing against restrictions from the four-week-old government-imposed coronavirus lockdown. Besides, in times of uncertainty while the demand for sales is falling the demand for rental is usually rising.
We continue to do essential maintenance including gas safety inspections and other necessary works to ensure the tenants and the properties are looked after.
Legislative changes (residential lettings)
This is a quick summary of legislative changes affecting the private rented sector across the UK due to the Coronavirus pandemic:
Evictions - from 26 March 2020 until 30 September all renters will have to be given a three months’ notice if possession of the property is required. This applies when using either Section 8 or Section 21 notices to quit.
- Courts - all new or existing claims for possession are suspended for a 90-day period from 27 March 2020.
- Energy Performance Certificates (EPCs) - the legal requirement to obtain an EPC when letting a property remains in place, but EPC assessments should only be conducted where they can be done in line with the safety guidance relating to Coronavirus.
- Minimum Energy Efficiency Standards - since 1 April 2020, the ban on letting properties with an EPC rating of F and G was extended to cover all existing tenancies. These rules were not impacted by COVID-19.
- Gas Safety Certificates and inspections - every effort should be made to follow existing gas safety regulations.
- Electrical safety Standards in the Private Rented Sector (England) Regulations 2020 - No impact from COVID-19. The rules are still scheduled to come into force for new tenancies from 1 July 2020 and all existing tenancies from 1 April 2021.
- Right to Rent Checks - the UK Government made temporary changes to ensure that Right to Rent checks continue in line with the Code of Practice.
- Mortgages - mortgage lenders have agreed to offer payment holidays of up to three months where this is needed due to Coronavirus-related hardship, including for Buy-To-Let mortgages
Over the short term, investment activity in commercial real estate is also expected to slow. We already see a dramatic drop in demand particularly for offices, A1, A3 and A5 premises. On the other hand, while sectors as retail and now also previously popular alternative asset classes such as hotels and leisure are facing increasing challenges, industrial and logistics looks set to remain a target for investors in the short and medium term. The large number of enquiries we are receiving for storage units and warehouses support this trend.
For retailers who have a physical presence the economic disruption is untold and hence preserving cash will remain their primary focus in the near term. Many are already facing issues in seeking to reduce their rent payments and other payments due under the leases.
The Coronavirus Act 2020 now protects commercial tenants from eviction for non-payment of rent and this, coupled with the business rates relief, is significant help indeed for many of the tenants. However, it is not a perfect solution as it does not remove their obligation to pay rent and is currently of only three months' duration, expiring on 30 June 2020. In addition to this, even though it might be difficult to exercise other remedies such as serving a statutory demand prior to a bankruptcy or winding up petition, issuing court proceedings for payment or taking steps to take control of a tenant’s goods under the Commercial Rent Arrears Recovery (CRAR) regime still exist as an option for the landlords. It is worth noting here that following Alok Sharma’s recent announcement the use of statutory demands and winding up orders has been temporarily banned. Government is also laying secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent.
What we can see now is that commercial tenants are approaching their landlords to request rent holidays, rent reductions, and monthly as opposed to quarterly rent payment schedules. Also, while some tenants seek longer term variations of their leases others are considering whether they can exit their leases altogether
Every situation is different and before making a decision and responding to the tenants’ queries it is important to consider the full terms of the lease and any other information that is available there. In most cases independent legal advice will be required. However, should you need our help we are happy to discuss this and to assist you with your concerns
Our shopfront remains closed but our team are working remotely to deliver the best level of service we can. Unlike many other agents we are available via phone, video and email to help you with all your property-related needs.
If you would like to discuss any concerns you have or need guidance, please give us a call on 020 8896 0800 or email firstname.lastname@example.org. We are also updating our website with some useful reads and you are welcome to access those here.
We will be here helping our clients navigate forthcoming changes and to achieve their property ambitions. We have assisted more clients than ever before in securing the best terms.
We’re here to help get you through this and come out the other side safely. Together we will beat it.