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The Recession and Property Prices

The Covid-19 pandemic has thrown the UK into the worst recession since records began.

Recessions are never a good thing, and we shouldn’t forget the human cost of unemployment, bankruptcies, and the loss of assets that recessions bring with them. However, recessions do present some property investment opportunities that no good investor can ignore.

The current recession is unlike anything we have seen before. Covid-19 is causing people around the world to rethink their priorities. It is also bringing with it unprecedented societal and cultural change.

These factors make the interplay between the pandemic and the property market considerably more complex than the 2008 financial crisis. The Global Financial Crisis was unprecedented in scale, and the property market was badly affected. Covid-19 is different. Its effect on the property market is multifaceted and goes beyond a simple price correction.

How will this ultimately play out for the London property market? Let’s take a look at the critical factors involved.

The Big Dip

While a deep recession always looked likely, the scale of the economy’s contraction has taken many analysts by surprise. Not only has the pandemic hit the UK economy hard, but it has hit it much harder than any other nation’s economy. The UK economy shrank by 20.4% in the second quarter of 2020, an unprecedented decline, even in the current circumstances.

Before the pandemic had reached British shores, it already seemed more than likely that we would face a coronavirus-induced recession. Even if the virus had never made it to the UK, its impact on the global economy and supply chains would have had an inevitable knock-on effect on the domestic economy. Once the government announced the first national lockdown in March, you didn’t need to be an economist to know that a recession was on the cards.

The controversial and arguably short-sighted decision to wind down the UK’s furlough scheme just as the country plunged off the economic cliff edge has put many people in a precarious position. As a nation, we are bracing for increases in business closures, bankruptcies, homelessness, and unemployment. While the government is encouraging people to get back out there and keep the economy going, it seems most people would rather hold on to their cash.

What Does This Mean For The London Housing Market?

As Mark Twain once said, “People misattribute quotes to Albert Einstein all the time.” But one of Einstein’s most memorable phrases is one that is rarely associated with him; “In the midst of every crisis, lies great opportunity.” For many of us, these words have never been more relevant.

We all know someone driven to the edge of sanity by the last lockdown. But most of us also know at least one person who has managed to make the most of their time stuck inside. Lots of people have been eating more healthily, exercising more, and learning new skills and hobbies during their lockdown.

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Similarly, while the immediate impacts of Covid-19 on the economy as a whole and the property market specifically are clearly crisis-worthy, there are also opportunities for those willing to seize them. Covid-19 is transforming our society, and it is looking increasingly likely that these changes will be permanent.

Cultural and societal factors heavily influence trends in the property market. For example, some areas of the UK have significant diaspora populations, and therefore attract the interest of buyers from the same background. Similarly, as public transport has become more commonplace and affordable, workers have been able to buy property further away from their jobs and commute. Covid-19 is influencing trends, both directly and indirectly.

The property website Rightmove reported their busiest day on record within a fortnight of the government lifting national lockdown. During these 24 hours, more than 8 million people searched for properties through Rightmove. That’s equivalent to the entire population of London. Clearly, there is still a demand for properties.

Shifting Priorities

Now that working from home has become the norm for a significant portion of the workforce, it is going to be hard to convince people to go back to office work. Initially, there was a general assumption that businesses would abandon their work from home approach as soon as it was feasible to do so. However, that’s not how things have played out. If the current trends persist and working from home is the new normal, the impact on property markets could be significant.

One of the main selling points of property in Central London is that it minimises or eliminates the need for people to commute for work. We can observe the same pattern throughout the UK’s urban centres. Most jobs are in the cities and living in a city can be a lot easier than commuting from the surrounding area every day.

But if the majority, or even a significant minority, of office workers can work from their laptops, these considerations evaporate. Currently, properties in and around cities cater mostly to people who work there. However, we could soon witness an influx of people moving away from cities and into the countryside. Such a demographic shift could have long-term ramifications for cities like London.

London is a notoriously expensive place to live. A lot of London’s office workers have been relishing the fact that they don’t have to cram themselves onto a train every morning and deal with the hectic London commute. For some people, their daily commute takes hours out of their day, leaving them with precious little time for themselves.

If people don’t have to live in London for work, how will the property market be affected? Perhaps not as bad as you might think. For one thing, people still need entertainment and human contact. Young professionals might find the English countryside a little barren and uninspiring.

Short-Term Vs Long-Term Trends

All of us, even the scientists and researchers, are learning as we go when it comes to the pandemic. We are witnessing the emergence of several trends in the property market, driven by the effects of Covid-19. But not all of these trends are going to last. Some businesses are beginning to call staff back into the office, and other companies are making it clear that’s what they want to do eventually.

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Companies that have had to upgrade their systems or otherwise invest financially in enabling remote working won’t want their investments to go to waste. But there are plenty of startups chomping at the bit for the opportunity to pursue an aggressive expansion. Such an undertaking would require face-to-face meetings and discussions. It’s also hard for business managers to get to know their staff properly over Zoom or Skype. In-person interactions are essential for many businesses.

Is Now A Good Time To Invest?

All things considered, the Central London Property market doesn’t appear to be in great danger. A deep recession, like the one currently facing the UK, will inevitably affect people’s budgets and spending. In the short-term, the economic pain might win out and lead to a dearth in property purchases in London. After all, as the UK’s busiest and most populous city, it is inevitable that Covid-19 will have a disproportionate impact there. Central London’s population density is ideal for the virus.

But Covid-19 (hopefully) won’t be around forever, A short-term depression in the property market could work in favour of investors. Landlords are cutting rents in many UK cities because they are having trouble finding tenants in the current climate. Similarly, if homebuyers hold off buying a property in London, sellers might be forced to reduce their asking prices. Investors can then swoop in and scoop up some real bargains.

Most current forecasts suggest property prices are unlikely to decline by more than 2%. However, the price will likely recover once overseas buyers start returning to the market.

Greater London Properties’ (GLP) Rob Hill has some advice for anyone still on the fence:

“Strike whilst the iron’s hot! With everyone currently making huge life choices, there are some fantastic properties coming on the market. We have seen a surge of Sales Valuation Requests across Central London; people are keen to see how much their home is worth before deciding what they want to do.  We are currently offering 3 types of Social Distancing Valuations, all can be found on our website here, else give my Sales team a call and we can happily share advice and ideas”

Of course, no one can say how all of this is going to play out or when it will end. But, despite the scale and severity of the recession facing the UK, no one is predicting a total collapse of the property market. Not yet anyway.

If you were considering purchasing property before the pandemic, you shouldn’t let Covid-19 stop you. Analysing the short-term and long-term trends that are occurring right now, there’s nothing to suggest that the sky is about to fall in. This recession is a big one, and it is unusual in many ways. The Central London property market is in for some short-term pain, but it will recover.

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