With the UK on lockdown, regular business has been swept aside. The human cost is devastating, but it also threatens to dismantle the economy and change the way businesses operate. Whether the effects are temporary or long-term, no one knows. Some businesses have been forced to close and people are unable to travel which has put the tourism industry under a lot of pressure.
In fact, Coronavirus is already having devastating effects on some companies such as Airbnb. As most on lockdown are unable to travel either for business or leisure, the demand for short term rentals has nosedived. The US-based start-up which provides a platform for homeowners looking to rent out their houses or rooms has lost hundreds of millions of dollars since the beginning of the year, with bookings 95% down in Asia, 75% down in Europe and 50% down in the US.
Although there are few positives to take from the situation, many businesses are showing a willingness to adapt to new circumstances and employing inventive ways their employees can work from home. It’s likely that in future we will see more flexibility when it comes to working, especially working from home or remotely.
Remote working can often lead to a better work / life balance as the need to commute is cut out, and it also allows workers to live further away from their workplaces. It’s also convenient if there are severe weather conditions or family emergencies / illnesses or for those who have other life commitments that are incompatible with regular office hours. The benefits are not just for the employee, it also allows businesses to “cast the net wider” with regards to the geographical location of staff and allows for great diversity. From a monetary perspective, overhead costs can also be greatly reduced as there will be less need for office space.
Once the pandemic has subsided, we predict that more businesses will consider flexible working and allow staff to work from home. We think more people will consider moving outside of London and major business hubs as they will no longer need to be within commutable distance of their workplace. It gives young professionals the opportunity to move into more affordable accommodation and allows them more disposable income.
Temporarily the property market has taken a hit as due to social isolation no one is moving house. We don’t see the property market being permanently affected by the pandemic though. If we look at China, residential sales in the 70 largest cities were down 90% in February 2020 compared to the same period last year. However, since the virus seems to be abating in China and strict isolation measures have been lifted. Offices have been reopened and private sales have tripled in the 30 largest cities since March.
We think the same trend will apply to Britain where sales will accelerate once the coronavirus pandemic is contained. We also think the focus is going to shift from London to commuter towns and more affordable regional cities such as Birmingham, Leeds and Sheffield. We know people are already moving out of London or thinking of doing so. In 2019 research was commissioned and found that four in ten people are looking to leave London and in 2018 the Office for National Statistics found that 340,498 people left London for other UK cities.
London may become even more unaffordable due to lenders withdrawing many of their products in response to the Coronavirus pandemic. Firstly, small lenders withdrew mortgages in the higher loan-to-value range and since then larger lenders such as Nationwide have also withdrew products, stating they are focussing their efforts on supporting existing customers. As higher loan-to-value mortgages are pulled, investors will have to put down a larger deposit amount, which makes buying more expensive, especially in cities such as London where prices are already sky high. Ashley Jones, consultant advisor at Mortgages for Business said ‘the majority of loans above 75% LTV have been pulled. Surveyors will be instructed to provide conservative valuation moving forwards’.
Those who still need to be in a London-based office occasionally may consider London commuter towns where they can still be in London in under half an hour, but property prices and rents are so much more affordable. For example, The Orion, a Luton town centre buy to let property, is priced from £179,900 which is much more affordable when compared to the average London house price of £671,989 (Zoopla). Currently, Orion is priced 10% below comparable homes on the market which allows for plenty of capital growth, in fact it is estimated that by the time the development has completed in Q4 2020, prices are due to elevate to £202,308. Yields of around 6% are expected and there is no ground rent applicable so investors can really capitalise on profits.
As we discussed before, AirBnB profits have plummeted significantly due to the Coronavirus pandemic leaving people unable to travel. Investors were previously attracted to the idea of serviced apartment investments due to the high yields they offer. Short term stays are able to command higher daily rental fees and this converts into higher rental yields. Although as we have seen, they are not immune to the change in the economic and daily landscape of the UK.
One alternative where the fundamentals are not affected by outbreaks or economic downturns are care home investments. The ageing population in the UK creates an underlying need for care home beds, and the government’s failure to provide an adequate supply means that there is a sustained demand for investors to plug the gap. These work similarly to serviced apartment investments in that they are classed as commercial property so no stamp duty is applicable under £150,000. They are generally bought on a 25-year commercial lease where a yearly return is underwritten in the contract. We source care homes that are fully operational and have been successfully operating for years. We analyse the financials to decide whether the returns stack up. Often guests are self-funded although if they do not have enough capital to fund their stay then the government supports them, allowing for a constant rental income and occupancy.
Contact One Touch today to learn more about investment property and sectors that can perform strongly despite the Coronavirus pandemic and economic uncertainty.
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