On Wednesday 16th December, Daniel Harrington, Head of Growth of Fine & Country Global was joined by a panel of business leaders in estate agency around the world to discuss the year of 2020, key trends to look out for and the forecast for 2021.
In the UK, Ben Madden, CEO of Fine & Country West London and Network Representative for the London region of Fine & Country, discusses how the general UK property market has coped in 2020, with further insights into the top-end property market in London.
Alice Watson-Smith, CEO of Fine & Country French Riviera, gave her perspective on the market in France, sharing how the lockdowns limited activity in the French market and the effect this had on the clientele France received in 2020. Alice returned to our screens after her appearance on our Worldwide Wanderlust Webinar series a few months ago to talk about everything you need to know about buying property in France.
Rupert Smith, Managing Director / Founder of Complete RPI and CEO of Fine & Country Hong Kong introduces himself and Fine & Country Hong Kong for the first time. As the Founder of Complete RPI, a specialist property management business, Rupert supports agents with a national bespoke lettings and management offering. Providing a platform to sell UK real estate to the Asia region, Fine & Country Hong Kong has been an exciting recent addition to Fine & Country. Accompanying Rupert was Chingyee Yau, of Fine & Country Hong Kong and Managing Director of Eden International Property Services, to share the perspective of investors from Hong Kong. With a background in banking, Chingyee is well-versed in the world of international investments and delivers her knowledge of the buyers and market in Hong Kong and Asia.
Joining us on the International Day of Reconciliation, a day to foster a sense of national unity in South Africa, was Stephen de Sadler, CEO of Fine & Country Sub Sahara and South Africa. Stephen shared the more complicated political and economic environment in South Africa over the past few years and the positive forecast for 2021.
To discover how the property market coped during Covid-19, key trends in 2020, investment opportunities and what to expect for 2021, Fine & County reveal a global insight of the property market.
An overview of the property market in 2020 and predictions for 2021
Hong Kong, China
Whilst Hong Kong has been affected by implications of the COVID-19 pandemic, the property market has not shown signs of crisis.
The off-plan property market, representing a lower price point, has been very active and, irrespective of Covid-19, this sector has been achieving its sales target most of the time. There is a willingness for Hong Kong residents to own their apartments, causing the off-plan market to be very active.
In the secondary property sector, there have been some affectations in turnover. Due to low interest rates and concerns about losing a strong investment, property owners in Hong Kong are reluctant to sell their properties. Many of these owners have mortgage-free properties and are concerned that by liquidating their property assets, there is a risk that they will later be unable to repurchase a similar property for the same value.
Trend: However, an increase in awareness of risk diversification has brought buyers’ attention outside of Hong Kong, particularly to the UK.
The UK started the year in a positive position where the housing market was moving at a faster pace than previously seen over the last four to five years. During England’s first lockdown, the property sector was the first non-essential market allowed to reopen, as an important contributor to the UK’s economy.
The Covid-19 pandemic drastically affected consumer sentiment and buying behaviour this year. As people looked for homes with gardens, a home office and more outdoor space, cities have become less popular and the market has become very buoyant in the rest of the country. The introduction of the SDLT, LTT and LBTT holidays caused an uplift in supply to the market and an increase in demand across the UK.
As demand in cities are not in line with the supply available, house prices in London will need to soften. Currently, the London property market is seeing price reductions or properties being withdrawn from the market to be reintroduced in 2021.
Predictions: Ben Madden predicts there will be a new wave of busy activity in cities from the spring and summer in 2021. Similarly, whilst the international tenant base has not been so buoyant, it is predicted that following the vaccine, demand is likely to rise again. From an investment perspective, if tenant demand increases again, landlords may be able to achieve a stronger yield than was previously possible.
French Riviera, France
Similar to the rest of the world, the market seemed uncertain in France during the first lockdown, in March. Following the first phase of deconfinement in May, the property market in France has been incredibly strong. Similar to the UK, France has seen an influx in the interest of more rural properties and less enthusiasm for city living.
Interestingly, the property market in the French Riviera, which is usually very popular for international buyers, saw European buyers entering the market. In recent months, there has been a decrease in international buyers, but a huge increase in European buyers, particularly buyers from Brussels, Luxembourg, Paris and London. As Fine & Country French Riviera operate in a second-home market, owners are attracted to the accessibility of this location, as they can hop in their car and arrive in their sunny French villa in only a few hours. Nonetheless, the international market is still very much there. Prospective buyers from Australia and America still have strong intentions to buy in 2021, but the activity is stalled and will resume in 2021.
Trend: Trend in high-management roles and executive buyers using their holiday homes to work from home with added lifestyle benefits.
Prediction: As the French Riviera is such a traditionally stable market, European buyers will be interested in keeping the properties long-term, even after the effects of COVID-19 subside.
Many buyers from Europe in 2020 were thinking of buying a second home in a more exotic location to enjoy during retirement. While Covid-19 has not changed buyers’ desires to purchase a second home, it has changed the location. Buying property in the French Riviera benefits from less risks, access to healthcare and better accessibility. There is also the added benefit of a safe rental investment if desired, generally on a short-term basis, so these property owners can gain return as well as enjoying the property themselves. Two per cent fixed 25-year interest rates on buying property in France is also appealing for these buyers.
During 2018-2019, South Africa experienced a politically difficult time. For the country, 2020 would be the start of “20-plenty”, as it welcomed new beginnings after a problem-period of two years.
Following Covid-19 lockdowns in South Africa, businesses were able to reopen from the beginning of June. The country has seen a lot of activity, but mainly in certain ends of the market. In the lower-end of the market (below ZAR2m properties), sales have picked-up remarkably. The implementation of inflation tracking by the SA Government to simulate the economy allowed interest rates to be lowered considerably during 2020. Lowered interest rates meant mortgage costs were equal to the expense of a rental property, encouraging a positive transition for renters owning their own homes again, in the low-end of the market. In the top-end of the market, some areas of South Africa have been missing about 50 per cent of their international buyers.
Trend: Towns that were previously seen as non-commuter towns have become a lot more attractive due to changes in buyer behaviour and lifestyle changes. More people are looking for properties where they can enjoy sea views while working and other lifestyle benefits.
Prediction: With the borders now open, as of 10 December 2020, South Africa will see positive changes to the economy and property market as it enters 2021.
Asia-Pacific, UK and the Middle East - A global investor market
Rupert began his overview of the market, saying, “Internationally the market has been crazy for a number of different factors.” Levels of interest in the UK-market has spiked, due to the Stamp Duty holiday, the weak value of the British pound, the current climate and political instability in other countries. The UK remains a stable place for an investment in bricks and mortar.
Opportunities in the UK, to allow investors to get diversity and a blend of both capital growth and yield, have opened-up the market from what was traditionally London and Southeasters looking for investments. Now, a lot of people are looking at the north of England as well as the South East and London to create that blend in their investment portfolio. While London, South East and commuter areas will always be safe places to invest, the ability to buyer cheaper real estate with higher rental incomes to offset the lower yield has been interesting this year.
Trend: People are starting to look at their property investments in a more business-like fashion, looking at the return-on-capital. Some investors are seeing no capital growth, but a lot of revenue and are looking at areas where they can get that capital growth, such as in the north of England.
Trend: This year, there has also been a noticeable movement of corporate tenants nationally. Areas, such as Birmingham, have seen a dramatic increase in activity as large organisations move out of central London. Equally, there is a large number of organisations who have decided maintaining or gaining a presence in London is important and demand is still high. The occupancy levels in the rental market have decreased in parts of London and the South East, but this will bounce back, says Rupert.
Additionally, a current issue for the property market is funding. The views of real estate from lenders and investors has changed significantly, when looking at the loan-to-value (LTV). Investors have lowered their LTV according to perceived risk and have veered their interest away from certain areas. Generally, global real estate investment continues to be a strong market.
Effects of SDLT savings and the two per cent surcharge for overseas buyers
The surge of activity in the UK has been heavily encouraged by the Stamp Duty holiday with its looming deadline, on 31 March 2021. The two per cent Stamp Duty surcharge for overseas buyers from 1 April 2021 may also affect buying activity.
The top-end London market
International buyers are typically buying in London at a price point that is not affected by the reduced rates in SDLT. Interestingly, buy-to-let investments have shot up by about 20 per cent over the last 12 months, which is quite significant considering the various factors that could deter landlords from making an investment.
The two per cent surcharge for international buyers
Many international property investors are taking on a sensible approach, looking at the medium to long-term investment, taking a six to 10-year view. A short-term off-plan property flipping investment, which is very popular in Asia, is a much riskier form of investment. When looking at the anticipated capital gain over a six to 10-year period, where hopefully the rental market remains strong and you are servicing a portfolio that has both rental growth and yield, for the inward investor paying a higher surcharge does not make a great difference to the investment. The two per cent surcharge is considered more of an inconvenience to have to pay more upfront and, overall, it has not stopped people coming into the market.
Stamp Duty savings
The Stamp Duty holiday has noticeably spiked interest levels. International inward investors who have traditionally bought off-plan are now buying completed stock – these enquiries have increased significantly.
Prediction: While this activity is likely to drop slightly, interest from inward investors in the UK is likely to continue. While interest rates remain low for the time being, changes in interest rates are likely to be an indication of how things may change in the future.
Investment opportunities in South Africa
Emerging markets, such as South Africa, present great opportunity for medium to long-term investments where the objective is capital growth. Relative to current exchange rates, at around 20 to GBP, 18 to EUR and 15 to USD, it will be unlikely for the exchange rate in South Africa to decline.
“From the perspective of that percentage of your portfolio where you want to invest in an emerging market, there won’t be a better investment to make than in South Africa”, says Stephen de Sadler, CEO of Fine & Country Sub Sahara and South Africa.
The growth trajectory for the country is good and it is forecast that the relative exchange rate is going to improve. For investors looking to build a growth portfolio, there is massive opportunity in South Africa. A million pounds would mean a lot of investments in SA with a very positive growth curve.
For more information on investing in property in South Africa, contact Fine & Country South Africa at email@example.com.
Predictions and emerging trends globally and nationally for 2021
Trend: Buying property without a physical viewing
The rapid shift in the way businesses and people operate and communicate to adapt to the effects of Covid-19 have also changed the way buyers are willing to purchase property. An increasing number of buyers in the market are buying properties completely online with the support of virtual valuations, digital viewings and video tours – a significant sign of the times.
Since the spring and summer of 2020, Fine & Country French Riviera have seen a rise in property sales through video tours alone and in 50 per cent of those cases, buyers have transferred on the properties having never physically visited them. There is definitely a shift in the way people are feeling comfortable with buying a property through video only.
Changes to buyer-profiles have been interesting in London this year. In 2020, there is a strong desire from international buyers to invest in the UK and 50 per cent of buyers in London have been international. Consumers have become more comfortable buying properties with the support of digital tools, and this is likely to continue.
Rupert, CEO of Fine & Country Hong Kong reports, 95 per cent of international buyers are now buying through completely digital means after taking a business-like approach, looking at the ROI. It is interesting to see people making decisions purely on numbers and how buyer behaviour is evolving. International real estate needs to get more comfortable with buying digitally, whether it be a commercial investment or a more emotive purchase such as a second home. As we have already seen in 2020, people are much more comfortable than we realise to make those decisions virtually.
From an investment perspective, we are going to see an increase in buyers that are willing to make an investment decision based on a financial set of numbers, rather than an emotional set of decisions. These investors will be looking at the rental returns, the cost of finance, the projections over a period of time and an overall more business-like view of investment.
Next year, expect to see more activity from investors in Hong Kong looking into the UK market for a property investment or second home. While investors are also looking in France, Germany and Switzerland, the primary focus is England. The Stamp Duty holiday savings or the two per cent surcharge are not determining factors for these investors as they are more focused on making the right investments. Understanding the market and the properties are the focus for investors in Hong Kong. Currently, lots of UK distributors and developers are presenting to investors in exhibitions, trying to capture their interest in going to the UK, however, information sharing to investors in Hong Kong is not great at present.
To conclude, there is certainly an increase of interest in buyers looking to diversify their investment portfolio, buy a second home or migrate to the UK.
Over the next three months, the usually quieter months, we can expect a busy period with national and international buyers.
In the second quarter, for sectors in the property market that are currently experiencing a very busy market due to Stamp Duty savings, there may be difficult negotiations for lower prices for sellers who have missed the Stamp Duty deadline. In London, we will see a spike in the market in spring 2021, as a significant number of prospective sellers wait to market their properties when the effects of Covid-19 have lessened.
There will be less buyers in the market next year. Local buyers may be unable to sell as quickly as expected due to the end of the Stamp Duty deadline and at the lower end of the property ladder, there will be fewer buyers, including fewer buy-to-let investors purchasing one- and two-bedroom properties, restricting sellers’ opportunity to move up the property ladder.
The potential of an increase in Capital Gains tax poses a few possibilities. If the chancellor drives up Capital Gains tax, this may force more properties onto the market or force a realigning of house prices.
While there are more unemployed people in the country, there are more savings in people’s bank accounts than there have been in years, according to a recent economic report. Economists predict there will be a boom in the second half of 2021, where people will want to spend the money they have saved. 2021 is likely to be an exciting and positive year for buyers and sellers.
The potential with families relocating outside of London may be that they will look at buying a second property back in London as a pied-à-terre, as opposed to a full family home. With sellers from London able to buy a property outside of the city for three times the square footage for half the value, these sellers will have additional revenue for other investments or a second home. For estate agency, predictions suggest it will be “survival of the fastest” to pivot to digital transactions and facilitate digital services as much as possible
There are indications for relative economic stability next year in South Africa. Economic stability will lead to political stability, which is important to ensure the government can support the economy over the next few years. South Africans and internationals are more prepared to trade in homes when they have a relative sense of political stability.
In South Africa, the buying market will prevail in 2021, but the level of seller’s price expectation will need to be moderated in order to get the general market to move next year.
In 2021, there is likely to be more stability and a more normal market than what SA has been experiencing, with the following year seeing economic growth.
Following the activity in 2020, the property market in France looks hopeful for the new year. However, discussions around a third lockdown in France in January and February may cause further delays in the market. Lockdowns do affect the property market in France, with the second lockdown being less limiting than the first lockdown in terms of estate agents' ability to provide their services.
From spring onwards in 2021, it is forecast there will be a continuation of the high levels of activity seen in spring and summer 2020. Depending on the global situation, there also may be a return of some international buyers.
The lower end of the market in France is struggling, as lending restrictions are tighter and there are people who have lost employment.
While the lower, entry-level market is slow, the mid-upper end of the market has been very active and positive during 2020. Predictions are for the upward curve in activity in the mid-upper market to continue as we move into 2021.
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Further reading: Discover everything you need to know about buying property in Mauritius, Spain, Portugal, France and Germany in our Worldwide Wanderlust series here.