By Jamie Johnson, CEO, FJP Investment
There are extraordinarily few examples of businesses – and indeed sectors – who have emerged unscathed from the financial impact of the pandemic. Indeed, economies across the world sunk into deep recession, as shutdown measures to contain the spread of the pandemic took their toll. It is significant to note alongside this that the UK had to navigate a particular and unique set of challenges – namely, dealing with the business repercussions of protracted uncertainty around the precise nature of the Brexit deal throughout the first nine months of the pandemic.
Against this backdrop of economic uncertainty, the performance of the UK property market over the last 18 months has proven quite remarkable. House-buying activity reached record levels in June 2021, with 213,120 sales registered with HMRC. Along with increased transactional volume, prices have surged radically under all of the major UK house price indices. Halifax recorded a rise of 9.5 per cent year-on-year to May 2021, setting another record for the sector with the average property changing hands for £261,743.
It would be easy – and reductive – to point to the Stamp Duty Land Tax (SDLT) holiday as the prime motivating factor for this skyrocketing activity. Indeed, the introduction of the levy as a stimulus measure during the pandemic instigated a flurry of buying activity as purchasers looked to take advantage of savings up to £15,000 – however, even as the scheme has begun to taper down, there is little sign of slowing.
When assessing the UK’s property boom, we must acknowledge the innate underpinning factors which set real estate apart from almost every other sector. Firstly, Britons’ love affair with property is renowned. Owning property as an asset class, or just for dwelling, is a motivating national characteristic, and one which is routinely encouraged at state policy level. FJP Investment recently published a report on the impact of the COVID-19 pandemic on investment behaviour which found that 39 per cent of UK-based investors are currently gravitating towards more traditional asset classes, such as property. This underlines the ‘safe haven’ reputation of property as an asset in the UK. Simply put, in a financial landscape of unprecedented uncertainty, people looking to invest favoured caution, to the benefit of the property market.
All of which was achieved, of course, with extremely narrow travel corridors, and minimal opportunity to attract investment from other countries. As we begin to emerge from the pandemic, and the successful vaccination drive allows for the restoration of travel, a return of international investment flows could prove vital in sustaining the long-term growth of the property market.
Can we take the anticipated revitalisation for granted?
While UK property has been perceived globally as an appealing and lucrative asset class, the ongoing consequences of the pandemic in creating (and quelling) investment opportunities globally still present challenges.
Thankfully, there are some encouraging signs. Knight Frank’s 2021 Wealth Report has predicted that the UK will be one of the primary beneficiaries of global property investment for the remainder of this year; while a similar report by Savills suggests the trend should prove sustainable into 2022. Further, EY’s 2021 UK Attractiveness Survey highlights the UK as the perceived most attractive investment opportunity in Europe, with 41 per cent of investors planning to invest in the UK in the coming year.
Ultimately, as global economic growth returns, the UK property sector needs to be proactive in attracting overseas investors back into the market and capitalise on the release of international pent-up demand, which will be key in maintaining the sector’s momentum – particularly once the SDLT holiday concludes later this year, and domestic aggregate demand is expected to plateau.
Harnessing the potential of overseas capital will be critical
It should also be noted that the pandemic has significantly, and perhaps irreversibly, altered both the demographics and ambitions of British people. While this adds another element of perhaps unwanted uncertainty, it could create great investment opportunities. For instance, the advent of home-working has led many to eschew urban living in favour of the countryside. This has pushed up prices in these rural areas with lower existing housing stock, of course, but also presents a real opportunity for investors to capitalise on.
A report by Savills found that the private rental sector in Manchester, Birmingham and Leeds combined to a value of more than £1bn in 2020, three times higher than in 2018. The prestige of London will always necessarily be a cornerstone of the UK’s appeal, but there are increasingly robust yields and value to be had across the UK. With home-working likely to become a fixture of British working culture going forward, developers could benefit by seeking to increase their interest in under-invested provincial areas, while also avoiding the planning headaches associated with building in dense urban areas.
The return of international capital will not only benefit the long-term growth prospects of the property market once domestic demand abates, more importantly, it offers the potential to help address the UK’s chronic housing shortage. Indeed, overseas investors play a vital role in bringing much-needed capital into the UK housing market and contributing to the creation of affordable homes and delivery of large-scale regeneration projects, that would otherwise struggle to secure domestic funding.
With the UK’s housing stock and pace of development at a longstanding deficit, an influx of investment to capitalise on new and evolving buyer trends could create beneficiaries of the UK as a whole, and reward those investors who can spot the opportunities arising.
