Posted on 26/03/2020 10:48:18   by   Richard Knight

Property Crowdfunding in the Time of Coronavirus

In a nutshell

On 31st December 2019, the World Health Organisation's (WHO) China office heard the first reports of a previously unknown virus behind a number of pneumonia cases in Wuhan, a city in Eastern China with a population of over 10 million people.

Now, what started as an epidemic mainly limited to China has become a global pandemic and at the time of writing, there have been nearly 200,000 confirmed cases and over 7500 deaths worldwide.

The disease has been detected in at least 150 countries around the world, with Iran, Italy and Spain experiencing the most widespread outbreaks outside China.

Here in the UK, at the time of writing, a total of 90,436 people have been tested, of which 82,359 were confirmed negative and 8,077 were confirmed positive. 422 patients in the UK who tested positive for coronavirus have died.

With information like this, we must be careful to remember to prioritise our own health and safety and that of others over everything else, as human life is clearly priceless. Alternative Finance, as with any other form of commerce evidently takes a back seat until our global health organisations have found out how to stem the virus and the death toll ceases to rise.

As a result, with less of a focus on global commerce, we've seen an economic growth slowdown on a massive scale with almost every global economy downgrading their economic forecasts, manufacturing activity stagnating, hugely reduced consumer spending in retail and aviation, slumping oil prices and a stock market rout.

Having said that, humans have always had a remarkable capacity for recovery after tragedy and history shows us that some of our darkest chapters have been quickly followed by the greenest shoots of hope.

With this in mind, and in the knowledge that we must carry on as normally as possible in the meantime, let's see how the Coronavirus could affect the UK's property market and what lies in store for investing therein.

Removal of post-Brexit uncertainty leads to COVID-19 stubbornness

So far, the UK's property market has proven to be mostly resilient to the impact of the Coronavirus. According to research conducted by the London-based estate agency Benham & Reeves, it was found that on the whole, buyers and sellers are returning to the market in confidence. A significant majority of 83% of those surveyed responded to the survey confirming that they intend to continue with planned home sales or purchases this year despite the pandemic.

It seems that after four years of Brexit uncertainty, buyers and sellers are refusing to put their plans on hold any further. This sense of determination was reinforced by the findings that 69% of those surveyed responded that even if the Coronavirus does become more widespread, they would not allow it to disrupt their plans.

Lucy Pendleton, founder director of estate agency James Pendleton, said:

"Registrations for purchase are running extremely hot. Despite the newspapers and TV screens being peppered with images of people wearing face masks and plastic bottles on their heads, there's still a huge appetite to move, and buyers and vendors have so far refused to put their searches on hold."

Nevertheless, it is certain that there will be a degree of inconvenience despite the resilience being showed.

As more people have been forced to self-isolate after Prime Minister Boris Johnson's speech to the nation on 23rd March, essential meetings like viewings, where, even previously, people were reluctant to let strangers into their homes, will not take place.

What's more, the whole phase of construction could well be affected as workers and builders who are self-isolating may be difficult to replace whilst the Coronavirus threat remains.

How will rents and mortgages be affected by the Coronavirus?

It's also worth noting that there has been a particularly strong resurgence in mortgage applications. According to Trading Economics 1986 - 2020 UK Mortgage Approval Database, applications increased to 70,888 in January 2020 - the highest figure since February 2016.

That said, mortgage repayments could possibly be at risk from anyone whose finances are affected by the Coronavirus. They're not alone in this struggle however, and the UK finance industry has support measures in place that should help to ease repayment stress.

Stephen Jones, Chief Executive for UK Finance stated;

"Banks, building societies and credit card providers understand that some of their customers may be worried about the effect that contracting the Coronavirus (COVID-19) could have on their finances, for example due to a drop in income or because of unexpected expenses or bills to pay.

"All providers are ready and able to offer support to their customers who are impacted directly or indirectly by COVID-19, which could include offering or increasing an overdraft or allowing repayment relief for loan or mortgage repayments.

"We would encourage customers who think they may be affected to contact their provider as soon as possible to discuss the support available to them."

Markets are resilient to outbreaks in the long-term

Although the market is showing bullish signs of resilience, it should be taken into account that the major stock markets have suffered some of their worst results since the 2008 financial crisis. It should also be noted that the Organisation for Economic Cooperation and Development (OECD) has reduced its global economic growth forecast for 2020 to 2.4%, down from 2.9% last November.

History has certainly shown us that while markets do plummet during crises, they are usually resilient and bounce back relatively quickly once the issue is resolved.

Looking at past crises, specifically health emergencies, as an example of market recovery, the most recent outbreak to significantly affect the UK was the H1N1 pandemic, otherwise known as "Swine Flu", which hit the UK in April 2009.

Along with the humanitarian cost, the outbreak was economically significant too, with particular emphasis on fewer approved mortgages and reduced construction activity. Nevertheless, between March 2009 and March 2010 house prices increased 10.1%, rising to 15.6% in London.

If we follow the tack of previous economic trends, this should show that even if there is reduced demand, property prices will remain stable.

Because of the post-Brexit surge in confidence that the property market has seen in January, it's not likely to suddenly freeze again because of Coronavirus, unless the situation worsens drastically.

Should I keep investing despite the Coronavirus?

Traditional wisdom in the investment industry dictates that in a crisis, you should sit tight. Jason Hollands of Financial Services Tilney states;

"Now is the time for investors to exercise nerves of steel and to avoid the temptation to sell long-term investments as a knee-jerk reaction to short-term turmoil."

As American business magnate, investor, and philanthropist Warren Buffet once observed;

"Be greedy when others are fearful."

What's interesting about this, however, is that there seems to be different levels of complacency between the generations regarding investments. Different demographics of UK society are behaving very differently when it comes to the risks involved - and it may not be exactly how you'd imagine.

Perhaps surprisingly, those most at risk to the Coronavirus in the 65 and over category were the least deterred, with a huge 96% transacting on their property purchase or sale come hell or high water, while those aged 18-24 were the most cautious with 30% calling off a current sale or purchase and a further 27% deciding against it this year.

While the younger demographics are slowing down their house searches as the crisis lengthens, more elderly people, perhaps buoyed by increased stoicism, knowing that the epidemic will eventually pass, are surging ahead with sales and exchanges, citing that Coronavirus would have no impact on their decision-making.

So, if the market is showing resilience and most people, fed up after Brexit uncertainty, just want to press on with investing, or buying and selling their homes - why all the doom mongering?

Is the worst still to come?

Stone Real Estate founder Michael Stone warned that new builds abroad "have all but ceased" and travel restrictions have stopped developers from attracting foreign investors. He said:

"If this persists for a notable length of time the very real possibility is a reduction in foreign investment and a negative impact on house prices."

In addition, Benham and Reeves boss Marc von Grundherr said his last survey found 17% of people have put house buying and selling plans on hold due to the Coronavirus.

"If this hesitation were to spread as rapidly as the cause itself, we could see current growing momentum peter out as market activity stalls once again."

What's more, it's thought that the economy could be put into an induced coma, with businesses and parliaments paused until the threat of the disease is passed.

Countries such as Italy, Spain, Japan and now the UK have already dismissed schools for a month, a trend we're seeing repeated to such an extent and with such rapidity that at the time of reading this, there will be many more countries added to the above list than at the time of writing.

In the worst-case scenario, Coronavirus could forcibly shut down building sites under emergency measures to contain the virus, silencing construction for up to three months.

"While construction order books have begun to recover in the opening part of 2020, the fly in the ointment is the uncertain impact of the coronavirus outbreak on UK economic growth prospects."

Said Tim Moore, Economics Director at IHS Markit. Mr Moore continued:

"A renewed slowdown could see domestic investment spending put back on hold and dampen the outlook for the UK construction sector."

What does the past tell us?

Looking back at historical outbreaks, in general it would seem as though this defiant attitude we're seeing is nothing new. During the flu pandemic between March 2009 and August 2010, UK house prices increased by 12.3%, and 17.5% across London.

While the threat of the Ebola virus remained away from domestic shores, there was also no decline in UK house prices due to wider economic and investor related turmoil, with prices increasing 14.4% across the UK and 26.6% in London.

While the threat of the Coronavirus remains at arm's length for many, the mere suggestion that a global pandemic would now stop people from investing in property seems out of the question.

Growth during previous pandemics suggests that house prices will also remain unaffected and while we may see a stutter in foreign investment from areas to have been worst hit, domestically people should be able to carry on, not allowing it to dent their aspirations of homeownership.

However, while buyers may still be champing at the bit to move into a new home, if businesses are put into quarantine, they may be forced to put their plans on hold.

There's a lot of unpredictability with the Coronavirus and there's a likelihood that it could get worse in the UK before it gets better.

However, in China the outbreak may have passed its peak as the country this week reported its lowest number of new infections since it started reporting in January.

It would seem that the fear of the virus is creating such disproportionate behaviour that it is scare-mongery and hearsay that we need to fear the most.

Because, if there is one thing we've seen a number of times over, especially post-Brexit, it's that the market will stabilise eventually. If ever there was a time to draw on our nation's commendable ability to remain equanimous in the face of adversity, to keep calm and carry on, this would be it.