Jamie Johnson, CEO, FJP Investment
The spread of coronavirus is arguably the biggest global event since the Second World War, having a devastating impact on people’s health and financial markets. Billions has been wiped off the London and New York stock exchanges, whilst governments the world over have been forced to impose strict restrictions on public life.
Despite these challenges, the property market may be able to stave off the worst of the effects of the pandemic. Having only seen modest growth in 2019 due to the uncertainty caused by Brexit negotiations, this is good news. So, what factors may be able to protect UK property during this difficult period?
Looking back to the global financial crisis
During particularly tumultuous times, it is worth reflecting on similar events to see how various parts of the economy fared. Of course, the 2007/8 financial crisis had a massively negative effect on the property sector, with prices down by 20% in the 16 months prior to June 2009. Similarly, annual transactions dropped by almost half, illustrating how difficult conditions were.
However, over the longer term, property performed well, despite the crisis originating in the mortgage market. In the decade from 2007 to 2017, London and UK house prices rose by 78% and 18% respectively — both impressive sums. The former is a huge figure, in fact, which clearly shows that even in the most challenging scenarios, property is reliable and may therefore recover well after the virus abates.
The global financial crisis was also a uniquely economic catastrophe, meaning property was perhaps more acutely affected than it will be COVID-19. Whilst this pandemic has been disastrous, it is, after all, a primarily health-centred issue.
There are further reasons to be optimistic. Firstly, property has resilience because it is a ‘hard asset’ with intrinsic value — as opposed to stocks and shares, which are more susceptive to market forces.
Earlier this month, for example, the stock markets nosedived due to spread of COVID-19. However, property prices were more resilient, dipping only slightly. As we enter a period that could be the worst of the pandemic, this should give investors confidence that the sector will continue to hold steady. Analysts are positive — Savills, for example, has not revised down its prediction of 15.3% compound growth over the next five years.
For those aiming to enjoy the resilience of property in this period, it might be worth considering investing now. It needn’t be a huge administrative task to do so either, as alternative investment routes of investment — such as debt investment or property development finance — allow you to place capital in bricks and mortar without becoming a landlord.
Other issues to consider
There are two further factors that could help property during the spread of COVID-19. Firstly, the UK has a dearth of housing stock, helping to keep prices at a higher level. Of course, the housing crisis is a problem in its own right that must be tackled by the Government, but the demand it has created could be a good thing during this period in stabilising prices.
Secondly, the planned introduction of a new stamp duty surcharge on international buyers in April 2021 could encourage foreign investors to act in the short-term, also contributing to demand.
The spread of coronavirus has caused huge problems the world over and will require some of the most drastic policy measures ever pursued in peacetime. However, property remains in high demand due to the factors explored here, and I expect to see the sector perform better than most over the coming weeks and months.
Jamie Johnson is the CEO and Co-founder of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors, institutions as well as family offices. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development projects.