By Daniel Masih Hans, Trainee Solicitor, Conveyancing Department at Deo Volente LLP.
How will the novel Covid 19, commonly known as Coronavirus, affect those of us that are buying and selling properties?
The big issue we are facing as a country is that these are unprecedented times; it is a blanket grey area. We have never seen an illness have such a global impact as Covid-19 has. The exponential rate at which the viral disease has travelled and been transmitted to populaces worldwide is causing much concern.
So much so that consumers are beginning to lose confidence. This lack of confidence is not limited to the property market, as we have witnessed with stockpiling of Toilet Roll and Hand Sanitisers. People are unsure what the future holds and so are panicking. The lack of confidence has led to a short-term decline in the property market.
Online Real Estate Agents, Zoopla, predicts housing transactions will drop by up to 60% over the next three months. We have witnessed an increasing number of sales, that had been agreed upon before the PM’s limitations, fall through: "Would-be homebuyers paused major decisions and took stock of the unfolding events in the UK and around the world, even before [restrictions] announced by Prime Minister Boris Johnson," Zoopla said.
The Financial Times has reported bankers are concerned about the impact of the pandemic on property valuations, furthermore, they are cautious about issuing loans due to uncertainty about the effect the virus will have on the economy.
Several banks and specialist lenders have already withdrawn new mortgages to focus on existing customers. Cabinet Office minister, Michael Gove, suggested on 24th March 2020 that people should cancel plans to exchange house contracts, instead he advised they should rent somewhere new and stay home.
The Law Society provided the following guidance on 25th March 2020 “If you’re acting for someone who has exchanged contracts and has a completion date within the next few days, and you, your client and the other side can proceed, which may be very difficult given the position with removal firms, there’s currently nothing to prevent you doing so.
- This is subject to the following current guidelines in respect of public health:
- Properties not being occupied with cases (or suspected cases of) coronavirus (COVID-19).
- Occupants not being in a state of isolation.
All parties abiding by social distancing requirements. The economic model of supply and demand perfectly demonstrates the likely outcome of this pandemic. The surrounding confusion about the virus alongside recent restrictions implemented by the Government will lead to a decrease in supply and demand.
People are fearful to sell their property or purchase one during the pandemic. By and by, this will in effect lead to reduced property prices. Colum Masih, Managing Director at Gold Crown Estate Agents, commented “In the past few days the property market has already seen a dip in property values as a cause of the Pandemic.”
He continued, “It is going to get worse before it gets better.” Colum’s comments are further echoed when we review the increasing rate of unemployment, a severely unfortunate side effect of the Pandemic. For consumers to have a demand, in whatever sector, they need to be able to facilitate such.
There will be a long-term downfall in the property market. Research into past pandemics has revealed quantitative patterns as to how a pandemic can affect the housing market. Rather than speculate, we can gain from the below statistics that the market will bounce back:
- During epidemics such as the 1918 influenza or the 2003 SARS outbreaks, economic activity fell sharply during the epidemic (a 5-10% temporary hit to GDP or industrial production throughout the epidemic) but snapped back quickly once the epidemic was over.
- During SARS, Hong Kong house prices did not fall significantly, but transaction volumes fell by 33-72% as customers avoided human contact (“avoidance behaviour” like avoiding travel, restaurants and public gatherings). After the epidemic was over, transactions snapped back to normal volumes.
- At the start of the Covid 19 outbreak in China, early news reports indicated that home prices had not fallen although transactions had nearly ceased.
Could this mean that the dip in the market will be shorter-lived than most people think? It is a possibility. I infer again that this is an unprecedented time, it is a waiting game to ultimately see how the housing market will be impacted by a coronavirus. With high volatility in global markets, the safe bet and recommendation are to hold off any transactions unless necessary.
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