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Residential - As Always, Timing Will Be Everything

Charles Whitworth • 21/04/2020

We all thought 2019 was challenging with Brexit and the political uncertainty culminating in the General Election. However, we immediately benefited from the “Boris Bounce” and this continued at the start of 2020 until the arrival of COVID-19. This has now been supplemented by the Government’s advice to close down the new homes and secondhand markets along with the prospect of a major recession and the impact that will have on the markets in terms of both demand and pricing.

Our international residential sales team had been on lock down since Asia closed down the exhibition market in late January. The team has been pioneering new marketing initiatives including digital marketing, on-line seminars and virtual viewings of proposed developments for potential purchasers. With Asia seemingly ahead of Europe and the banks opening again for business, buyers from Asia remain active in the UK market with both exchanges and completions taking place.

More importantly other teams are looking to learn and implement similar marketing initiatives and adapt them where possible for the UK market. In the development sector developers are trying to conduct business where they can. The major PLCs and large private housebuilders are (as a generalisation) withdrawing and/or attempting to install “corona clauses” into contracts. 

Bidding prices appear to remain at pre-corona levels. For example, in early April we received strong bids on a site suitable for senior living that out-performed expectations; furthermore, with a portfolio of sites going into joint ventures, the parties remain committed to closing those transactions out. The well capitalised non-debt reliant property companies and developers are becoming more opportunistic, seeing this as a chance to deploy capital when the major market players take stock of the situation. In reality, transaction levels will drop in the short-term but both vendors and purchasers appear keen to transact where possible, particularly for quality assets. Flexibility from both parties in agreeing contracts will be key.

In the residential investment market, parties are still focussed on closing out transactions where possible but there is a general nervousness around forward commitments and the ability for developers to deliver in accordance with agreed costs and programmes. However, the fundamentals have not changed that have been attracting institutional investment into this sector and we believe investment will continue in the short and long-term. Standing stock is more challenging without the ability to undertake internal inspections but due diligence can be undertaken online.

For UK new homes, at the start of the year reservations were up a staggering 160% year on year, but individual sales have largely been put on hold in the short-term following the Government’s announcement that home buyers and renters should, where possible delay moving to a new house whilst measures are in place to fight COVID-19. Many developers as a result have closed down their on site marketing operations. The inability to sell homes over an extended period may well have an adverse impact on the poorly capitalised developers.

The prospect of a deep recession bringing high unemployment and reduced salaries will in many locations impact on both pricing and demand along with a slowdown in buyer activity. 

As ever, timing will be key. At present we do not know the extent of economic pain but the longer it takes for ‘normality’ to return the greater the challenge, but also the greater the opportunity.

There is still a shortage of housing across London and the South East. In the medium/long-term, it is expected land and home buying activity will resume with the demand-supply imbalance at the core. In the short/medium-term with residential now emerging as a real stand-alone asset class, resilient against many wider geo-political impacts, the build to rent market could be a beneficiary.

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