Jamie Johnson, the CEO and Co-founder of FJP Investment, talks of how the UK property market may be affected by the ongoing COVID-19 crisis.
The spread of coronavirus has taken the world by surprise, with the stock markets around the globe plunging as supply chains suffer massive disruption. Whilst there have been reports of a bounce back since the beginning of the crisis, governments have taken sweeping action to reduce the spread of the disease, impacting billions of lives.
The result is a great deal of uncertainty and fear. The property market, however, despite performing modestly through much of 2019, has the potential to ride the wave of the chaos. There are several reasons for this.
Firstly, property is a hard asset with intrinsic value, like oil or metals. Whereas stocks and shares and other soft assets can be affected by even small market changes, property has greater resilience.
This was seen in mid-March, when a massive amount of value was wiped off of stock markets, whilst property only dipped slightly. This strength is reflected in analysts’ predictions, who are sanguine about property in 2020. For example, Savills has not revised down its prediction for UK property, and is still expecting compound growth of more than 15% over the next five years.
For those who want to maximise on this intrinsic resilience, now might be a good time to act. One of the biggest barriers to investing in property can be the administration and management it requires, but alternative avenues that minimise this aspect exist. For example, alternative finance options such as debt investment allow investors to own bricks and mortar without becoming landlords.
Global financial crisis
Looking to the past also reveals the resilience of property through turbulent periods. The 2007/8 financial crash had a huge effect on property, with transactions down to just 700,000 per year in the 12 months prior to June 2009. However, over the long-term, property rebounded strongly; in the decade between 2007 and 2017, house prices in London rose by 78%.
This is a huge figure, but prices also increase by a strong 18% in the UK as a whole, suggesting that even in the most trying of situations housing remains a highly reliable asset type.
Furthermore, the global financial crisis was a purely economic problem, meaning it directly pertained to property. The spread of COVID-19, on the other hand, is primarily health-related, meaning that the sector might bounce back even more so once the virus abates.
There are further reasons to be confident about property during this pandemic. Over the short term, the new surcharge on international buyers could serve to increase demand from foreign buyers before it is introduced in April 2021, buoying prices.
Looking to the long term, the incredible pent-up need for UK property will also help. Whilst the dearth of housing stock is the root cause of the housing crisis and hugely problematic in its own right, it will also serve to provide a ballast of demand, helping to steady house prices. Of course, the Government still must act to increase the base number of dwellings in the UK.
The spread of COVID-19 provides the world with some enormous challenges that will require a coordinated policy response. However, the outlook for the UK property market is not as gloomy as some would suggest. Indeed, past examples and the intrinsic value of it as an asset mean I expect it to weather the coming months strongly.
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.