Unlike other industries blighted by the virus’s economic impact, the UK home market has so far surprised analysts with its resilience.
In the six weeks following the re-opening of the English market in May, exchanged contracts were up 4% compared with the period between the start of the year and 22 March, when lockdown began, according to Knight Frank. Zoopla’s June house-price index showed annual gains of 2.4%, up from 1.6% at the start of the year. The online property portal forecasts average price gains of 2% over the next three months.
This seems unlikely to last. In its latest June estimate, Savills’ dropped its forecast for the year to an average 7.5% fall in UK house prices. Knight Frank forecasts a 7% fall in the UK and 5% in London.
This implies sharp falls in the autumn and winter, when withdrawal of government stimulus packages take effect. But it’s still not clear when or how this will happen, says Tom Bill, head of London residential research at Knight Frank. “Unlike after the financial crisis, when buyers disappeared, they have remained this time, creating strong demand.” (Market at risk from money laundering, see box at foot of page)
Although the Swedish government didn’t state that herd immunity was the aim, Sweden’s lockdown was mild compared with many countries. Authorities largely relied on voluntary social distancing and other measures included a ban on gatherings of 50 people or more, the closure of high schools, university courses moving online, confinement to home for those over 70 and a ban on care-home visits.
Like those in London, Stockholm homeowners benefit from low mortgage rates, mortgage holidays, and an economy insulated in part from COVID-19 by wage protection schemes.
And, mirroring the post-lockdown surge in UK listings reported in London in June, Stockholm agents reported a sharp increase in Stockholm in March as sellers rushed to sell in case lockdown was imposed on the Swedish capital.
The data from May is, therefore, worrying. Home sales for one- and two-bedroom homes in Stockholm fell sharply, by 29% in May (full June data is not yet available), as this excess supply combined with the fears for the Swedish economy set in.
Sharp falls in April and May 2020 compared with a year ago owe more to Hong Kong’s political unrest than to the virus, from which the territory remained relatively unscathed, thanks to its early response, before cases increased sharply as part of a further wave in the middle of July.
Demonstrations against a crackdown from the mainland began in earnest last June, with property transactions falling sharply across all months that followed, compared to levels of the year before.
This makes May’s strong sales numbers (a shade below 7,000 homes were sold) all the more surprising. The levels are just 15% down on the month a year before, before demonstrations started.
Low interest rates, limited supply and high demand, and the growing appeal of property as an investment asset, especially to mainland Chinese, seem to have trumped the impact of COVID-19. But the fallout from the controversial security law imposed on 1 July is still unclear. Investors, and buyers, would be justified in being nervous.
New York’s headline figures are stark. Following the “stay at home” order on 22 March, the city’s property market nosedived: 77% fewer contracts agreed in April, 80% fewer in May, and 65% less in June.
But these figures don’t tell the whole story. The $2.3bn in property trades over those three months may have been a fraction of the $10.2bn in Q2 2019, but that was a bumper season when buyers rushed sales through before a hike in state-wide mansion and transfer taxes in July 2019.
The future is hard to call. Beside the COVID-19 drag, the forthcoming presidential election could hold any market recovery back. “In past election cycles, market activity, particularly in the prime and super-prime markets, tends to pull back,” says Garrett Derderian, CEO of GS Data Services in New York.
Despite lockdown easing in the major cities – schoolchildren in Beijing and Shanghai returned on 27 April – figures for April and May showed property markets returning to health, with total sales in Shanghai comfortably exceeding levels from a year before.
Government stimulus in the sector has played a crucial role. “These included softening of price caps and purchase qualifications, tax concessions and cash subsidies for first time home buyers,” says KK Chiu FRICS, chief executive of Cushman & Wakefield’s Greater China business. Ready lending by Chinese banks at low mortgage interest rates helped too.
He says the Beijing market remained largely insulated from a second outbreak in June. The city of more than 20 million people confined entire neighbourhoods in their homes and ramped up testing quickly, measures that western cities, especially London, may struggle to implement.
There is a danger that COVID-19 could open the sluices to dirty money flowing into the UK’s top-end home market – long a problem in London.
Not only are estate agents’ budgets squeezed, increasing the temptation to cut corners when it comes to money laundering checks, but businesses that would otherwise go under may be tempted to deal with criminals if that’s all they have, suggests Kyle Phillips, a London-based money laundering specialist at law firm Fieldfisher. “Institutions have to cut back on their resources. There’s a question about businesses that might turn a blind eye to keep afloat. I think there are a few who won’t do [adequate] checks.”
Estate agents are one of the sectors obliged to raise concerns with police if they suspect a purchase may be linked to money laundering or terrorist financing. Of 478,437 such suspicious activity reports (SARs) reported in the year to March 2019, estate agents contributed just 635.
Phillips says the government is partly to blame. A freedom of information request he made last year revealed that HM Revenue Customs had made fewer than 55 investigations into estate agents for breaches of money laundering rules in the six preceding years. “There’s a major issue with money laundering in the property sector – everyone can see it. Unless there’s property scrutiny from the regulators, people will treat the checks as a tick-box exercise, not a proper risk assessment.”
Great temptations come even as the sector faces tougher rules. Since January, the UK’s anti-money laundering (AML) regulations extended checks required on the source of buyers’ and sellers’ wealth, introduced in 2017, to luxury lettings (those that cost €10,000 or more a month).
RICS has been alert to the heightened risk the current set of circumstances places on the profession, and has updated its AML guidance accordingly, recommending measures such as more checks for high-risk transactions and robust training to cover employee illness or furlough.
RICS has also been working with The Property Ombudsman (TPO) to develop an overarching code for property agents based on the recommendations made by Lord Best in his Regulation of Property Agents Working Group, final report, published in July 2019. We invite you to comment on the draft code and answer our questionnaire on its content and clarity.
Ann Gray FRICS 01 June 2023
Logan Nagel 25 May 2023
Gela Pertusini 28 April 2023