As with any boom and bust scenario, the ongoing coronavirus pandemic has cast a very dark shadow over the UK property market. While officially the UK property sector is still “frozen” there are signs that many building sites are opening again and the sector may well be open for business fairly soon. During the lockdown period there have been signs that long-term property investors are looking towards the UK in anticipation of some interesting deals.
Be careful of worst-case scenario predictions
It is very easy for the UK press, indeed they have history, to focus on the worst-case scenario predictions for the UK property market. We have seen this in years gone by and no doubt we will see this again. However, it would appear that savvy investors are discounting these worst-case scenario predictions and looking at more “reasonable” forecasts.
The reality is that the UK property market will likely come under pressure in the short to medium term. Whether prices will fall dramatically remains to be seen with many sellers probably unwilling to reduce their previous asking prices and therefore likely to withdraw for the market. In theory this could leave fewer properties available and in itself inject a degree of competition amongst buyers which could help to maintain prices.
It is no secret that rental yields in many areas of the UK are still attractive, especially when compared to UK base rates which are currently 0.1%. There is also the added kicker of potential capital growth in the medium to long term as well as cheap finance available at the moment. There is already evidence that some high net worth individuals are refinancing previously debt free properties to increase their liquidity. The assumption is that many long-term real estate investors believe there is significant value in the UK market.
We have to mention the UK economy as a means of balancing the pros and cons of investment in the UK. Yes, there will be a potential double-digit hit on GDP and you also have the spectre of Brexit hanging over the UK. So yes, there are potential dangers for the UK economy in the short to medium term but whether worst-case predictions come true remains to be seen. However, for many investors the relatively cheap mortgage finance available today should see them navigate potentially tricky waters in the short to medium term
We will end this article on the subject of investor sentiment which appears to be holding up relatively well bearing in mind the constant barrage of negative press comments. It is worth noting that many of these “worst-case scenarios” involve the word “could” although they are often betrayed as likely. So, if investor sentiment is holding up in the face of a huge amount of negative press comment what will be the impact if/when the situation starts to improve?
It would appear that many long-term investors are looking towards UK property amid expectations of a short-term markdown in prices. Whether or not this will happen remains to be seen but the UK media have been publishing a huge number of negative articles regarding the UK property market. As many long-term investors have “seen this all before”, investor sentiment is holding up remarkably well considering. While the proof will most certainly be in the pudding, there would appear to be a huge wall of liquidity ready to hit the UK property market as and when the current freeze is over.