The author of this article spells out some of the steps that property investors, buyers and sellers can take in the months ahead after the pandemic, and charts some of the challenges that will remain for a while to come.

COVID-19 has hit the economy hard and London’s property sector is no exception. The prospect of home working becoming more widespread is ominous for office landlords, for example. And will a desire for more spread-out homes mean densely populated cities fall out of favour, even if the properties are upscale? Or might some old patterns reassert themselves as or when memories fade of the pandemic? And all the while the UK must adjust to life outside the European Union. 

To examine these issues is Lisa Bevan, senior counsel at Taylor Wessing, the international law firm. The editors are pleased to share these views; the usual editorial disclaimers hold and, of course, we urge readers to join the conversation. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The announcement by Robert Jenrick late on 12 May that the UK residential property market could reopen for business as early as the following day was greeted with a slightly startled fanfare across the industry. Subject to observing new government regulations and complying with rules on social distancing, estate agents' offices can now reopen and physical viewings of properties can begin again. Most agents opened their doors for business on Monday 18 May.

This follows a period of near paralysis in the market after viewings were suspended and agents' offices closed as part of the initial phase of the UK lockdown at the end of March. Although agents reported a healthy number of online enquiries and virtual viewings during this period, lockdown resulted in the suspension of a huge number of existing transactions, estimated to be in the region of 400,000, and effectively closed the door on all but a handful of new deals being agreed. 

As the industry emerges, blinking from the aftermath of the sudden shutdown, thoughts turn to how lasting an impact the crisis will have on the prime central London (PCL) market and what its recovery might look like. Will the appeal of having a trophy London residence lose its shine? Should we expect to see different trends appearing in the sector as buyers' priorities shift as a result of their individual lockdown experiences? Agents already report a renewed interest in rural properties and those in London that offer some outside space. Not surprisingly, a broad range of views has been expressed, and not just from those with a vested interest in a swift return to business as usual.

What went before
When reflecting on how the market might bounce back from this short, sharp shock, it makes sense to track back to where we were, pre-shut down. For those operating in the PCL market, February and early March 2020 certainly brought cause for cautious optimism. The decisive outcome of the December election saw improved buyer confidence and a flurry of activity, with deals being concluded and contracts exchanged in advance of the budget on 11 March. This was in part as a result of overseas buyers seeking to avoid the expected increase in the SDLT surcharge for non-UK based buyers, which was in fact deferred to April 2021. 

With the Brexit uncertainty of the previous four years, which had left the market lacking any real sense of dynamism over that long period of time, it was a dearth of stock that was one of the main causes of reduced activity; those who did not need to sell for the most part remained circumspect but suddenly there were signs that spring 2020 might be a good time to take the plunge and finally go to market. Then coronavirus hit… 
 

The prime central London market going forward  
The buoyancy or otherwise of the PCL market is undoubtedly driven by global wealth rather than the health of the UK economy alone. Until we are through the pandemic, it is probably premature to talk about a V shape or U shape (or any other shape) recovery so far as this particular market is concerned. However, in recent decades it has proved to be very resilient over time, delivering strong and consistent returns for those who are in it for the long haul. The importance of the international element does mean that there is likely to be some delay in transaction levels returning to normal, as long as travel restrictions remain in place. Thereafter, a 14-day quarantine period for those arriving in the UK will also present practical challenges for many. That said, many overseas buyers engage the services of a buying agent who can do much of the preliminary work for them.

With virtual tours available for most properties now, a shortlist can be compiled and a deal concluded without the buyer's physical presence. Buying agents can probably expect to be more in demand over the coming months as overseas buyers become increasingly reliant on their services. A good buying agent will often have access to properties that have not yet been brought to the market, giving their client the edge, particularly when there is a shortage of top quality properties for sale. They will also have a broader reach in terms of sourcing a suitable country property which may be outside of the comfort zone of many HNWIs, but now on their wish list. 

As the lockdown is gradually relaxed over the coming weeks and months (and provided there is no second spike) we can probably expect July and August to be busier than usual, without the traditional summer shutdown, as parties try to make up for lost time, particularly as the usual plans for summer holidays will have been disrupted. Supply is likely to present some short-term challenges as seller confidence and concern over reductions in value may send some would-be sellers back into hibernation for some weeks to come. 

Not surprisingly there is a widespread consensus that values will take some hit for the remainder of 2020. Knight Frank predicts a drop in values in the PCL market of 5 per cent over 2020. This is revised from their forecast at the beginning of April of a drop of 3 per cent which assumed a fuller lifting of the lockdown in May, which did not happen. There is a general view that pandemics are necessarily finite and so there is expected to be greater scope for a swifter and more decisive recovery for real estate markets generally than, for example, from the 2008 global financial crisis.

The present crisis will undoubtedly present opportunities for investors seeking to find a bargain, particularly when dealing with forced sellers, some of whom may have lost interested buyers during the lockdown and be attracted by the offer of a swift and uncomplicated deal. This is unlikely to be the arena for PCL sales however, where the very best quality properties are expected to battle to hold their value.

The majority of those buying in PCL are cash buyers seeking a long-term hold. Many still choose to take a mortgage for inheritance tax mitigation purposes and they will continue to be attracted by historically low interest rates. 

Although the pandemic's impact on global equity markets has reduced wealth among the HNW individual population, there will be many still seeking to capitalise on the weakness of sterling and to make their move sooner rather than later. For property lawyers, we may see a return to sealed bids and 24 hour exchange periods for premium properties. There is certainly an expectation that mid to late June and beyond will bring a bulge of transactions for legal teams and we will be keeping in touch with our agent contacts to get a better feel for the summer pipeline.