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Covid-19 Impact on the Global Appetite for UK property

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In a recent property webinar, we discussed how Covid-19 is affecting global demand for the UK property market and the outlook of UK property for overseas investors. We were joined by Head of International Residential and Board Member at Savills Hong Kong, Mark Elliott, who answered some of the key questions our clients are asking about the impacts of the virus on the property market, as well as providing his outlook on UK property prices over the coming year. We share some of the highlights and key points from his presentation below.

How has COVID-19 impacted the global appetite for UK property?

Mark Elliott from Savills commented:

The UK property market has been affected but it’s not been as detrimental as we perhaps thought, or as initially predicted. One of the main reasons for this is that government action has been particularly swift and sharp. 

We are probably operating at about 50-60% of sales capacity in Hong Kong. What I mean by that is, I would probably say there has been just over half of the deals up to the year to date that were done in 2019. That’s mainly due to Covid-19 but also the Brexit situation plays into that, and also the civil unrest in Hong Kong that happened towards the end of the last year – but year-to-date we’re £50 million in sales and we’re still generating a stream of inquiries.

Of course, you know it’s had an effect but it’s not a huge detriment, because in Hong Kong we’ve got a grip on it very quickly and they’ve also seen the response in the UK, especially from a government perspective. They reacted pretty quickly in order to make sure the people are still interested in the UK and that there’s still an appetite to invest there both now and in the future.

How will global property investment demand be affected by the virus for the rest of 2020?

Mark Elliott from Savills transcripted answer:

It will really depend on what happens over the coming weeks and months. If people adhere to social distancing and stay inside in the UK, I genuinely believe we may be back to normal by July. When we say back to normal, this may be a new normal with people wearing masks and people not flying as much etc.

 I believe the short answer is the best-case scenario is we will get back to relative normality by July. Worst-case scenario, towards the end of the year things will start to pick up again, but again that’s really dependent on the actions of people if they deal all around the globe and whether we contain the virus.

We could see the demand we saw in December/January which really skyrocketed as people started to see a recovery after Brexit negotiations. So, we’re hopeful the demand will be back up to the levels that it was in December/January last year for this year.

What can an investor expect to happen with the house prices in the next 12 months?

Mark Elliott from Savills transcripted answer:

Savills had predicted not a huge amount is going to change in London, but we are going to see growth in the regions, so you can expect that there is going to be suppressed growth in 2020 and we won’t see what was originally predicted last year as it’s obviously changed.

We are still sticking with our predictions of a 15% rental increase over the next three years and a 20-25% percent increase over the next three years in capital value. We think we’re fairly on point with a huge research team in the UK to collect enough data to be able to make those predictions. Our research is realistic rather than overzealous, so basically we expect capital values will increase in the next twelve months but more modestly than we predicted last year.

You always have to look at 4 or 5 year periods and if you can 7,8, 9 or even 10 year periods for capital appreciation. I think the people that are buying today will see a return on investment much more so than they would do in financial markets. People are looking for assets, they’re looking for bricks and mortar and they’re looking to take advantage of the weak pound that will fuel growth which will in turn fuel your house price growth.

What is the rental demand like in the UK?

Mark Elliott from Savills transcripted answer:

They will rent, it’s as simple as that.

The reality is that students are always going to want to aspire to study in Aston or Birmingham or Cambridge or Oxford or wherever it may be, that’s never going to change. I’ve learned over the last 12 years that people always want to have a base whether it be a holiday home or whether it be a trophy asset, so from an overseas tenant perspective they will still be coming to the UK. 

Equally, people need living places in the UK, so the domestic market although you can’t do viewings at the moment, teams across our 142 offices in the UK are still leasing flats on a daily basis. 

Rental demand is always going to be there in a country of 66 million people. Are rental prices going to appreciate over the next 12 months? – No, but will they be the next five years? Absolutely. This will always make UK Property desirable for overseas investors.

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