As the coronavirus (and the information and misinformation around it) spreads, panic rises, and we are now at the stage of a worldwide pandemic. Every aspect of life is affected, from day-to-day living to the worldwide economy.
The UK housing market isn’t immune to the coronavirus, or COVID-19, as it’s officially known. The government has recommended that people keep their social distance, which makes the property-viewing part of buying and selling bricks and mortar a tricky process.
And yet, despite concerns around the UK housing market, experts believe that prices will rise by at least 2% this year. Even so, the current market finds itself in a strange position.
As of February, property prices were up 3.5% year-on-year, according to property portal Rightmove. While there are currently no numbers for March, the coronavirus has certainly thrown a spanner into the works.
But will the initial uptick in property prices turn out to be short-lived, with the COVID-19 bringing everything – including bricks and mortar – to a standstill?
China’s impact on the London property market
The worldwide outbreak of the coronavirus came at a time when Chinese investment in London property hit a new peak in the capital’s prime market. According to estate agent Hamptons International, Chinese buyer investment accounted for 6% of prime postcode purchases, while Harrods Estates saw Chinese investment rise from a 2.5% market share in 2016 to 20% in 2019.
The coronavirus could halt investment in the short term, however. Hong Kong is a particular investment hotspot, with many developers travelling to the city to attract Chinese investors for off-plan projects.
However, a reluctance to travel around internationally, along with many property exhibitions suffering from cancellations, means that fewer transactions are likely. With banks and law firms shutting down under self-quarantine in China, not to mention low volumes of people travelling between the countries to view properties, London property prices could take a hit.
A worldwide pandemic couldn’t have come at a worse time as far as the London property market is concerned. It was on the up at the start of 2020, after a trying three years in the aftermath of the EU referendum.
Super prime properties in central London postcodes – which also see the brunt of Chinese investment – started 2020 better than most, with property sales increasing by an impressive 34%. The numbers even led Rightmove to predict a buoyant spring market.
Now, those optimistic predictions could change with the unknown of the coronavirus. Transactions may fall (at least in the short term) as people shy away from viewings in fear of catching the virus.
Chances of a global recession
Predicting what happens next with the coronavirus is tricky, both in terms of health-related issues and worldwide markets. However, the January economy slowed, with Q4 global GDP contracting for the first time in 43 quarters. Forty-three quarters ago equates to roughly 2009, which was around the time of the last global recession.
And yet, signs were largely ignored because the virus was still in its infancy, and the data around coronavirus was limited. This led to the contraction being largely attributed to slowing Chinese figures. Fast-forward a few days, however, and markets all over the world dropped at alarming rates.
Fortunately, they seemed to be back on track just a few days later. Still, the yo-yoing of markets means it’s hard to predict whether or not there will be a global recession. But even in the case of a financial downturn, the property market could actually prove to be beneficial to the national economy.
The role of property in any recession
The 2008 credit crunch, which was brought on by the mortgage crisis, made property investment a risky option. However, many look to safe investments during recessions, and bricks and mortar is an asset class that typically provides more guarantees than stocks and bonds.
In the event of a global recession, property prices would likely take a hit – but perhaps not to the extent of other markets. With prices recently recording record-breaking rises, on-the-fence sellers and buyers might spring into action before a recession kicks in.
The initial stage of a recession is where sellers can prosper. In the event of a global financial downturn, the property market is unlikely to suffer in the same way as it did during the credit crunch and could prove to be an asset.
An increase in online interest
Even the Chinese market’s potential to impact short-term sales in prime London postcodes doesn’t have to impact a property market that was well on its way to vibrancy. Especially with the rise of Internet shopping.
The number of Chinese web browsers looking for UK property was on the up during the months of January. An increasing amount of people in self-isolation chose to spend their time researching property markets. Knight Frank even suggests that the outbreak has increased interest in London property.
The estate agent says that property searches are up by 50-60% since the outbreak. While searches vastly differ from real-life enquiries, the numbers show that interest isn’t waning – despite a potential worldwide pandemic.
Adapting to current conditions
Estate agents will be asking themselves how they can translate initial interest into hard enquiries and property viewings. With domestic buyers becoming more concerned about leaving home, agents will need to get creative.
The answer for combatting the drop in enquiries could lie in video viewings, with estate agents adding to their responsibilities and offering to send video recordings of properties for those who don’t want to – or are unable – to leave their residence.
House prices have risen the fastest in 18 months, but the coronavirus means that it’s time to adapt for the foreseeable future. No matter what the outcome, it wouldn’t be a surprise to see the capital continue its role as the defensive asset class of the world.