COVID-19 – The Pandemic
How has it impacted upon our local property and construction market?
Graeme King, Director of RTK Stamford Ltd, formally RT Architects, takes a brief look at the local market and the impact of the virus.
COVID-19 has thrown all sorts of spanners in all sorts of places this year but what we have encountered is a significant increase in instructions so, quite unexpectedly, we are looking at a good year for our Practice here in Stamford. I say unexpected, which is an understatement, compared to the feeling of doom and misery we all experienced when Boris first announced the national lockdown – anxiety levels were certainly at straining point at times.
So why are things so buoyant? Common sense points to the fact that homeowners, spending more time at home and less on themselves, are exploring the possibilities of improving things through extension, renovation, conversion or indeed, moving home. This has been accentuated through the almost miraculously immediate move to working from home and the massive increase in the use of video conferencing software.
As a result, our local construction marketplace is extremely busy and with that comes even greater challenges in undertaking works to your home, which beforehand, were difficult enough.
Contrary to this positive local property picture, nationally the economy has been, since August, in a recession – the first recession in 11 years. Traditionally this creates deflation in building tender pricing. Looking at historical data over the past three recessions, building costs fell by an average of 17%. In terms of duration, from pre-recession to the point costs hit their trough, it normally takes an average of two years to hit rock-bottom. The return to the peak can take as long as six years to return.
What these historical figures do not take account of is the unquestionably unique impact of COVID-19 – our macro and micro economies are faced by exceptional circumstances. Whilst nationally the picture appears bleak, many construction sites have remained open during the pandemic and whilst productivity has suffered (as a result of a short-lived hiatus is the supply of building materials and secondly the impact of social distancing measures), building work has continued apace.
Stamford and Rutland have got away reasonably well, thus far, from the spiralling infection numbers being experienced in larger conurbations, and the much-announced increased migration to the area from the south may well reduce the impact of the recession for us going forward, and indeed see the present and buoyant marketplace continue. Let’s hope so!
What are conveyancers saying?
Adrian Jaggard, CEO of Taylor Rose, a top five property law firm, specialising in conveyance says:-
Like most industries, 2020 has been a tough year for conveyancers as demand for our services fluctuates dramatically. A challenging start to 2019 improved as the year progressed into autumn, gaining momentum through until March 2020. At this point, we carried more work in progress than ever before.
During April and May, our instructions and completions simultaneously and dramatically reduced to around a third of March levels as most transactions stalled, they didn’t either complete or fall through. Work in progress remained frozen at high levels with no feed of new instructions, nor reduction through completions.
Instructions started to increase again in June, before returning to our March levels in July and then remaining at consistent high levels. Completions are now steadily increasing, but lag behind the recovery in instructions. As a result, work in progress continues to build at record levels and conveyancers are probably busier than they ever have been. We anticipate increasing completion numbers for the next six months, followed by a significant slowdown in April 2021 as the stamp duty holiday expires.
What are the Estate Agents saying?
Jamie Tyler, Sales Director at Osprey Property, adds: –
Like the construction industry, when lockdown was announced we had a dim view of how things would be for the remainder of the year.
Osprey took the view to work from home and to progress our current sales whereas, many other estate agencies closed their sales departments. We were concerned many agreed sales would fall through if not properly progressed, and luckily we had only one transaction not complete.
Once people had settled into the new routine of working from home and home schooling, new enquiries began again. Be it a need to move nearer family, a bigger house with room for an office, a rebalancing of lifestyle, there were many reasons that COVID-19 brought about a desire to move home.
During the first lockdown our blog concerned how vendors could produce their own walk-through video tour, and this proved very popular with our sellers.
Over the summer and into autumn we have done brisk business, and our level of completions is higher than in 2019. This was certainly helped by the Government reducing the level of Stamp Duty. We are still very busy and expect the winter and spring to continue to be so.
So what about the future? We are positive. Money is cheap. East Midland’s prices are not high. Brexit will not adversely hit our market; London is far more exposed. Generally, residential investment property is still an attractive asset class, and with nil returns on bonds, cash and decreasing dividends, we think residential property is a solid investment over the next five years.
We started the year expecting a 4% rise in prices (see our annual predictions in January), many others were a lot more bearish than us. For example, Savills predicted a 7.5% fall in prices. I am glad to report that it seems we will be correct, OK we did not predict COVID-19 and its impact, but we judged sentiment. Nationwide reported house price growth, in the first eight months of the year, is 3.2%. Savills have subsequently, in September, revised their -7.5% prediction to +4%; the same as us!
Interest rates have dropped even further, base rate is now at 0.1% and furthermore we expect to stay at sub 0.5% for the next 5 years as the economy recovers. This is exceptionally cheap money and mortgage rates are likely to be sub 2.5% for the next 5 years.
Over the longer term and in the new norm, we expect house prices to keep moving up. Not irrationally, nor aggressively, but steady house price appreciation leading to capital appreciation. Combine this with a rental yield of 4-7% and the merits of residential property as an investment can be seen.
Graeme King concludes:-
Just as I write this conclusion, Pfizer have just announced the first effective coronavirus vaccine and the FTSE shot up immediately by 5% so, the first piece of good news for eight months!
With interest rates remaining at record low levels for the foreseeable future, our local area gaining in appeal nationally, and the continued reduction of Stamp Duty until March 2021, things look bright for the Rutland and Stamford micro-economy. So, I look forward to Spring 2021 with some positivity although, tempered by the massive bill we all face when this sorry story ends.