As I write this we are into our 66th day of lockdown, and as the time goes by I have noticed one question that I have been asked so many times recently by landlords, tenants and investors:
"What effect will COVID-19 have on the local property market in the short, medium and long term?"
I can safely say that most of us have never experienced times like these, so to give us some idea of what may happen we can look back in history to give us some clues and more recently, the bounce back that is happening to the property market in China. COVID-19 will touch all parts of the Portadown, Craigavon, Lurgan and NI property market, So I will be looking at its impact on our local property prices, local landlords and also tenants and the rents they pay.
The 3 Hurdles of COVID-19 and the Property Market
The main hurdle must be the lockdown itself.
The current limitations on our normal day-to-day lives will slow down property transactions, be that property letting or sales. Nearly every stage of a property transaction will occur some difficulties; from the actual viewing of the property, the Surveyor checking the property for the bank, the inventory being prepared before a tenant moves in etc., are all sticking points.
Secondly, the NI housing market has never liked uncertainty and this virus will play a part on people’s feelings towards moving home or not.
Thirdly, there is the issue with the money people will have, be that wages, whether they have a job (or not) and if their savings / investments perform.
What Will Happen to Portadown, Craigavon & Lurgan Property Values?
Do a quick read online and you’ll find a fare few economists predicting a property melt-down, yet I feel a lot of that is merely clickbait. Our local property market is less exposed than it was in the previous four property crashes in 1972, 1979, 1988 and 2008. This is for the following reasons.
- Before each of these four crashes, there was a significant upward spike in property values before the crash. We haven’t had this over the last 12 months in Northern Ireland.
- Mortgage interest as a percentage of household income (nationally) was a massive 32% in 1988, 18% in 2008 – yet now it stands at just under 8% because interest rates as so low.
The economic stress in 2007/08 was the result of a credit crisis where lenders faced huge restrictions of credit and high borrowing costs. The outworking’s generated a shock to unemployment which increased from 3.6% to 8.1%, equivalent to 37,000 people and a 13% fall in wages (inflation adjusted) for those who kept their job. This forced a surge in homeowners having to sell their properties at much lower prices as they couldn’t meet their inflated payments.
In today’s environment, without a surge of forced sellers, the extent of any price reduction will be more limited. The government’s recent announcements including mortgage holidays, deferred rates and VAT bills, interest free borrowing and lower central bank interest rates will support businesses and households in the coming months. The Job Retention Scheme, where the government will pay 80% of wages of staff ‘furloughed’, has been the most significant intervention to control mass increases in unemployment.
Technology will permit some elements of the sale / letting of properties to continue and indeed may change the whole process after the virus is gone. Virtual viewings, smartphone live tours, 3D walkthroughs of properties, and live chats are evolving developments which support the property industry. Banks, lenders and surveyors are moving at haste towards desktop valuations to ensure mortgage lending can continue.
Whilst encouraging, the upside opportunities from technological developments cannot offset the short-term risks and market activity will inevitably slow in the coming months. In the last week alone, the supply of properties added to Property Pal (NI’s largest property portal) and the level of buyer interest has fallen by over 60% compared to this time last year.
Forecasts suggest the number of transactions could fall by 70% in Q2 2020 and potentially more so in the coming weeks. A rebound in activity is expected later in the year as pent-up demand moves from Spring into the Summer/Autumn months. The extent and timing of the rebound will depend on when ‘normality’ returns to businesses and households.
From a pricing perspective, it is difficult to tell the scale of the direct impact. I suspect in the summer there will be some homeowners who will want to sell at all costs, and not care what price they achieve. Savvy property buyers will swoop on those properties and drive a hard bargain, meaning there will be some short-term localised reductions in what properties sell in the summer for those that want to sell at any cost.
How Will This Affect Landlords & Tenants in the Portadown, Lurgan & Craigavon Area?
In the short term I suspect that the number of tenants moving will reduce in the next three to four months. Tenants have peace of mind under the newly introduced Private Tenancies (Coronavirus Modifications) (Northern Ireland) Act 2020, that temporarily increases all Notice to Quit notices to a minimum period of 12 weeks and buy-to-let mortgage payment holidays for landlords whose tenants are in financial difficulty (note the tenants have to give proof to their landlord that they are unable to pay by supplying their applications to Universal Credit etc.)
With the measures implemented by the Government through furlough payments and access to benefits, for most tenants, rents will continue to be paid, making no major impression on rental prices in 2020.
All things considered, the outlook for the market remains ambiguous. On the optimistic side, the market will largely ‘pause’ in the short term and there won’t be damaging structural impacts on the long run performance of the economy and assuming there are no other seismic shocks in the coming weeks and months – in a few years’ time – this will be seen as a bump, albeit a rather big bump; another part of the roller coaster ride of the NI property market.