Sunday Supplement 01/10/2020

Nov 1, 2020

Sunday’s supplement and under the spectre of another national lockdown.

Without any clarity as yet not much can be said other than the promise for this not to be as harsh and draconian as the last one seems to be one thing that is being honoured.

The major difference for those with younger children is schools staying open.

For people who are isolated or live alone the other major difference is being able to take daily exercise with one other person from another household.

There seems to be some confusion over work… seems to be work from home where possible or if your workplace is open. Presumably open under covid-secure measures. Not clear to me at this point who determines whether your workplace is open, presumably the employer unless the workplace is closed by the restrictions i.e. pubs, restaurants etc.

Not clear as yet as to what estate agencies etc. Are doing/being forced to do.

The given time frame is 4 weeks. This makes sense at this point (within the context of the whole thing not making sense, as far as a joined up strategy goes) from what we learned first time around – lockdown started 23/3 and peaked at 12/4 for daily deaths, by 23/4 we could have reopened and moved forwards the second wave/the dance.

Better treatment and better understanding of the virus should also lead to better outcomes. Within a couple of weeks daily deaths will move to over 500 again, sadly.

This had been anticipated by the markets quite a bit. Stock markets drew back a few percentage points this week as Germany and France and Spain locked down a few days ahead of the UK.

Last week on the property market saw more properties sold subject to contract than any other week this year (in a normal year, that would not happen in a late October week) but also the most fallthroughs since the first lockdown began, and also more withdrawals than we had seen for around 6 months.

All this leads to volatility and would normally be a leading indicator of a recession. The word “recession” and the definition of it doesn’t work for a pandemic, clearly. The likely outcome here is an economic contraction in q4 2020 and then an expansion from that contracted position in q1 2021. (I.e. not a double dip recession). The dictionary definitions won’t help the businesses and people that are struggling because of Covid and the associated measures to combat it.
For a few weeks I’ve been pointing to the one thing that I see with clarity – the near future looks volatile. The graphs for this year are very up and down in a way not seen for many years in both the stock and property markets.

I keep getting asked about when the property market will crash or fall……the reality is that there is no guarantee this will happen. There are some good reasons for this:

  1. it looks unlikely that credit will crunch too far. There are lots of headlines around there being fewer mortgage products but at the same time there are higher numbers of properties being bought with mortgages. Cash buying transactions are at a low, not a high. This is because lots of cash is waiting for better opportunities. But are those opportunities guaranteed to appear… definitely a strong possibility but no guarantees.
  2. the stamp holiday has driven activity and looks likely to be extended or reformed. At this point I wouldn’t expect that announcement until about 8pm on 31st March…….
  3. the economic pain so far has been concentrated in the poorer demographics, ultimately, and that is largely represented by renters rather than buyers.
  4. (and probably the biggest point of all) for a proper crash the precursor is a boom. There has been no boom. In 2010-2019 the property market in the UK rose 33% on average. A very slow and sustainable rise. The micromarkets that DID boom have already seen their corrections really – London corrected and has been flat for 4 years, Oxford and Cambridge are similar. The timing of all this just doesn’t point to a crash.

This is why I see choppy waters ahead but during this decade I see prices doing well, as a rule. This is a long game and should be measured in years and decades not month to month.

Much of the market is used to the new restricted measures and in reality this new “tier 4” being applied nationwide does not change much in terms of current rules and expectations (in my view).

I do think the market and the players in it will be tired by the time 2nd December comes and like every December that will mean there are deals and opportunities for those who put the legwork in.

I would close by saying anyone expecting it to be raining deals early next year or at any point in 2021 – this seems unlikely to me. There will be deals especially on debt/distressed properties but the lack of cash being deployed means there is a long long queue for these deals as and when they do come. The likely outcome is high transaction volumes to make up for the lower volumes this year, and a small drop in price overall.

As always individual locations, tenant types and use classes will see pockets of opportunity.

I’m still actively buying and having to work harder than ever before to get deals. But these deals look like deals in any market, and so they are still deals to do.

Stay safe out there and look after yourselves!