Development Consultancy: Post-Lockdown & the New Build Residential Market
Two frequent questions we have had since lockdown started are, "Are you able to help, and how is the market?"
To answer the first question, we have been able to continue advising our clients, and the whole team has remained active in carrying out valuations throughout lockdown. This has been a key advantage for us as we move into the next phase of eased restrictions. Over the last two months, we have been able to gain valuable market-facing knowledge, acting on new build schemes that are on the market over this unprecedented period.
We have embraced the 'new normal' working ways, and in some areas, we have been surprised by the improvements. Many aspects of remote working will be here to stay in the longer term.
Physical inspections are now possible, which will hopefully help 'open the market'. The wellbeing of the team, clients and the general public remains of paramount importance, and we have detailed policies and procedures in place for property inspections to ensure everyone stays safe and well.
Our experience and that of our agency colleagues are allowing us to be 'market-relevant' after a period of reduced activity, where evidence is often in short supply, and some valuers have been in 'lockdown'.
To answer the second question about the market, we have seen some trends and can apply some educated observations to the coming months.
After the General Election in December 2019, the UK residential property market enjoyed a brief boost, thanks to a combination of political stability and progress on Brexit, giving both buyers and sellers increased confidence. As a result, house prices hit a new peak in February 2020. As of mid-March 2020, the market faced a new type of uncertainty, with COVID-19 affecting both buyers and sellers' confidence.
For the last two months, the property market can be said to have also been in 'lockdown' to an extent. The usual process of property transactions has not been functioning normally in terms of property viewings, finance, legal process, and actual occupation. The lockdown has caused property transactions to cease in most cases. We are aware of movement in sales by auction and new home reservations resulting from online or virtual viewing platforms. However, in the case of new home reservations, these are only agreements for sale with no actual transaction, and even in the case of auction sales, the process has been altered to account for COVID-19.
We have not seen large scale price reductions for new developments over lockdown and the 'second hand' market has seen little activity, if any, in some locations and property types. However, we are seeing increased activity since the relaxation of 'lockdown' in England has begun.
VIRTUAL VIEWINGS PROPELLING THE MARKET FORWARD
As you may have heard, a significant factor for many new homes and those coming to the 'second-hand market' is virtual viewings. 3D tours or virtual viewings hosted by agents have helped our clients secure reservations. The success of these reservations is scheme and agent led, but we are seeing good results across a range of locations. It seems that the market has reacted well to online interaction, with video tours and video conferences enabling some developers and agents to move new build schemes forward.
Social distancing looks to be here for many months, and therefore virtual viewings of residential properties will be here for the foreseeable. However, we note that the current requirement of securing a new build reservation is with little or no risk to the buyer as fees are starting as low as £99. We apply caution to these reservations, which may not convert to actual sales. There remain issues of buyers pulling out of agreements and problems with raising mortgage finance, along with mortgage valuations being able to support the agreed prices. A valuer will be taking the 'rear-view mirror approach' with mostly pre COVID-19 evidence, which can make it difficult to resist a down valuation for market sentiment, even with an RICS Red Book 'uncertainty clause'. These clauses are a common theme within valuation reports at present.
Once the market has further opened up in terms of activity, many commentators foresee downward price adjustment in the short to medium term. We have already seen smaller effective price reductions for some new home sales, through increased incentives such as 'stamp duty payments', 'service charge holidays', 'payment of mortgage for a period' and the more normal professional fees, etc.
It is too early to predict how the market will perform over the coming months, even with the continued gradual relaxation of lockdown measures. The first thought after an event as significant as the COVID-19 outbreak is a downward price adjustment in property values, and this does remain a real possibility. However, the tension between demand and supply remains an important consideration. In addition, there may be a 'summer bounce' after relaxing of lockdown with little change in the market prices or this may support a period of 'stagnation' of values.
As you can see, there are many predictions as to where the market will be in the near future, using the various 'curve', 'tick' and 'W' scenarios. It would seem the UK residential market is in for an interesting remaining 2020 and early 2021. While there may well be a 'good feel' factor with easing of lockdown helping the market, it would seem the stronger test will come in the autumn when the true impact of recent events becomes more visible. This will depend on how successful the government is in keeping the virus under control in the longer term, and in supporting the economy.
In the meantime, we can forecast into the future based on possible scenarios, and one outlook is a relatively good market for the southeast if the virus stays under control. While there is reduced second-hand supply, this area will benefit from increased buying activity as individuals assess their post-lockdown needs, low cost of finance from banks keen to lend and well-placed incentives for new build buyers. However, if the virus returns when the sun goes away, there will be a bumpy road ahead.
My team is well-placed to judge and appraise this uncertain market over the coming months given our experience of valuing developments currently being marketed. We are ready to help and look forward to continuing working with you and providing solutions through the challenging times ahead.