Will House Prices Drop After C-Virus As It Makes Property Funds Escape The Market?

Covid-19 influenced many spheres of life and changed people’s habits and preferences. The property market didn’t become an exception. It is still going through great changes and experiences certain hardships. The costs of property became different. Besides, today we can observe the situation when the demand is higher than supply due to the new requirements of people concerning real estate. As a result of all those factors, the period of the Covid crisis provoked impressive outflows making the real estate market as weak as never before.

General overview of the situation during the crisis

House prices during coronavirus have changed greatly because of the shifts in people’s preferences. Thus, people became more interested in bigger properties with gardens and good zoning. Such a situation makes the UK property prices for the definite types of real estate very high. People started to buy real estate even without visiting it. On the other hand, other kinds of property became more available. Thus, today Londoners can buy a comfortable apartment at a more moderate price compared to the period before Covid.

When coronavirus hit the country, investors were not interested in withdrawing their funds because of the total lockdown and impossibility to accurately evaluate their portfolio. Before Covid-19, withdrawals were also very low. If to compare the figures for December 2018 and March 2021, the withdrawals were 391 million pounds and 589 million pounds correspondingly.

What will happen to house prices in 2021?

Considering the total amount of losses for the latest years, the investment funds fell by 10%. Such a decrease was caused by Britain’s exit from the EU. The number of outflows reached about 2 billion pounds. Covid-caused outflows became the second blow for the property market.

Now we can watch the house price crash in the UK. According to Nationwide, the house prices in 2021 have increased by 7.1% for a few first months of this year. The average price of a detached house now reaches about £320,000. Experts say that house prices in 2021 are most likely to grow higher due to the inconsistency of real estate properties to the requirements of people – the trend will continue to January 2022.

Many people ask the question: will house prices drop after coronavirus? Compared to March 2021, prices in April rose by over 2%. In the summer months of 2021, they rose further, about 3% every month. If we look at the annual data, prices became significantly higher. It’s also greatly connected with the Stamp Duty holidays, acting in England, Wales, and Northern Ireland. Even though it is not a key motivating factor for buyers today, the property market will be highly active for the following 6 months. In addition, specialists are sure that prices will keep increasing in the perspective of 5 nearest years because demand will be higher than supply in the property market. Such a fact is supported by fast sales of property as well.

The opportunity to purchase real estate is caused by the fact that many people managed to save money during the pandemic. According to the head of Barclays, savings will soon make the largest economic boom in Britain since World War ll.

Property investments

Many investors are not sure about the stability in the property market. When the pandemic finally comes to an end, the habits of people will change forever, which can influence the valuation of real estate. Thus, investments in different types of properties are very risky today.

Many companies in the UK allowed their employees to work from home. And they claim that such a way of work will also be possible even when Covid-19 suspends. It means that people can continue working from home and preserve their new habits concerning the choice of property.

According to experts, property investors are more interested today in equity funds than in real estate, which can be later capitalized on the economic rebound, which is predicted to come as soon as the crisis ends. Considering the data for May 2021, such funds enjoy the biggest inflows obtaining over £2.9 billion. Active fund managers got the biggest part of money enjoying the largest haul since summer 2015. The look of the investors at the property market is not that positive. The majority of them are planning to wait until the situation with property renting and purchasing becomes clearer.

In the UK, many investment funds took a pause in their activity. Some of the most prominent ones are:

• Aberdeen Standard Investments
• Legal & General
• Columbia Threadneedle
• Janus Henderson.

The M&G fund was the first one to stop the activity. It happened in December 2019. However, the fund is reopened at the end of the 2nd quarter of 2021. For this purpose, they were keeping raising cash levels.

The Columbia Threadneedle fund, which lifted its suspension in September, announced great outflows. In accordance with the Morningstar data, from the start of 2021, investors took about 129 million pounds from the fund. Note that by the end of March of the same year, the assets of the fund totaled 667 million pounds. An average outflows number reached 267 million pounds after many funds were suspended.

The middle of summer 2021 appeared to be more positive for property investments. The restrictions connected with the pandemic became less strict, while investors became more optimistic. As a result, outflows rates became lower. Thus, in July, investors took about 94 million pounds from property funds. Such an amount is still significant, though. However, we can see positive changes if compare the figures for June and May, which are:

• 249 million pounds (June)
• 414 million pounds (May).

In addition, by the end of July 2021, some active funds had small inflows, which is a good sign. By that moment, purchases edged above selling activity. It became the main reason for the new wave of investors’ interest in real estate investments and reduced the number of outflows. Sales fell by a third. The increase in buyer interest is also obvious now. As the ‘work from home’ guidance is dropped, many investors became more confident in the real estate sector. And this positive tendency continues to grow.

Gross property fund purchases reached the highest level since the time right before the crisis (February 2020). They reached 142 million pounds. Calastone’s Fund Flow Index demonstrates that such a result is still negative. Thus, selling outweighs buying at a rate of £1.65 sales for every £1 of buys. Nevertheless, the latest data are really encouraging due to some bright spots. For example, we can observe the increase in the demand for industrial premises. It is connected with the suspension of restrictions when people can finally come back to work in offices. The economy of the country goes through the recovery, which together with such positive tendencies encourages investors making them more certain in the future of the sector.

Much time can actually be required in order to reach at least the figures of the economy we saw before the pandemic. We still need to wait before seeing the significant inflows in real estate. However, if the positive tendency wins, it’s possible to hope that the restoration will happen by mid-2022.

Concerning new office spaces, the demand for such type of property also started increasing. It happened right after Derwent London (one of the real estate giants) announced the purchase of 5 buildings around Bloomsbury and Marylebone. The company exchanged contracts for 2 properties with a total space of 182,100 sq. ft., which are situated nearby the University College London. The cost of the property was 214.6 million pounds. The office building is given to the University College London Hospital on a lease. The expiration date will be in 2039. The cost of the contract totaled 4.7 million pounds every year.

Conclusion

The situation in the property market was unstable in 2020 and the first half of 2021. The economy went through hard times and it’s required to wait until it finally recovers. The answer to the popular question “are house prices falling?” becomes clearer in autumn-2021. As the economy and situation in the property market come to the norm, other markets will also become more adequate. Now the situation is far from perfect but we hope it’ll stabilize by July 2022.

Compared to the situation 6 months ago, investors are generally optimistic about property investments. The inflows start growing step by step, opening new opportunities to various types of real estate. Nevertheless, the sector needs considerable time to finally come to the norm.