The impact of COVID-19 is being felt by every industry around the world. And while current focus is on protection and containment, there will come a time when we can start to look ahead to renewed activity.
For property investors, it’s a case of sitting tight and protecting your investments by adapting to market conditions.
LOCKDOWN OF THE PROPERTY MARKET
Of course, there’s concern amongst property investors at the sudden cessation of activity, which covers a range of areas from moving house to housebuilding.
Current government advice is that completions on house moves should be put on hold. While there’s no need to pull out of a transaction, if the property is currently occupied, all parties should try to amicably agree to alternative moving dates until stay-at-home measures are no longer in place.
Estate agents are currently unable to carry out viewings or valuations although you can speak to them on the phone and conduct virtual viewings. Therefore, very few new transactions are being instigated.
On top of this, many mortgage lenders have withdrawn some mortgage products, particularly higher LTV deals. This is hopefully a temporary measure, prompted by concern at the risk of loaning while current restrictions are in place.
Another area of non-activity is in housebuilding. At present, government advice is that construction work can continue if workers are two metres apart. However, some construction companies feel that this is too difficult to enforce and have closed down sites in order to prioritise the health and safety of customers and employees.
FINANCIAL SUPPORT FOR PROPERTY BUSINESSES
Fortunately, there are ways property investors can protect their businesses in the face of these lockdowns. The government has offered significant financial help to support business owners through this pandemic.
Different packages have been introduced that will provide relief to the self-employed and businesses of all sizes.
THESE INCLUDE THE FOLLOWING:
- If you’re a UK VAT registered business and have a VAT payment due between 20 March 2020 and 30 June 2020, you have the option to defer the payment until a later date.
- You can delay making your second payment on your self-assessment tax bill due at the end of July 2020. You now have until 31 January 2021 to pay it.
- You can claim a grant through the Self-employment Income Support Scheme if you’re self-employed or a member of a partnership and have lost income due to coronavirus. This scheme will allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 per month for the next three months. This may be extended if needed.
- You can apply for the Coronavirus Business Interruption Loan Scheme that aims to support small and medium-sized businesses with an annual turnover of up to £45 million, to access loans, overdrafts, invoice finance and asset finance of up to £5 million for up to six years.
The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees. This means smaller businesses will benefit from no upfront costs and lower initial repayments.
The government will provide lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims) to give lenders further confidence in continuing to provide finance to small and medium-sized businesses.
SUPPORT FOR LANDLORDS AND TENANTS
Additional pressure has been put on landlords as the government put in measures to prevent tenants in either social or private accommodation from being evicted during this difficult time.
However, to alleviate the pressure, they’ve announced that three-month mortgage payment holidays will be extended to landlords whose tenants are experiencing financial difficulties due to coronavirus.
At the end of this period, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account tenants’ individual circumstances.
PROTECTING COMMERCIAL PROPERTY INVESTMENTS
There have been widespread closures of non-essential shops, pubs, restaurants and leisure facilities across the UK.
To aid businesses in the retail, hospitality and leisure sectors in England, the government has said they will not have to pay business rates for the 2020 to 2021 tax year.
Eligible businesses include shops, restaurants, cafés, bars or pubs, cinemas or live music venues; assembly or leisure property, for example, sports clubs, gyms, spas; and hospitality property such as hotels, guest houses and self-catering accommodation.
You don’t need to apply as your local council will apply the discount automatically.
PROTECTING OVERSEAS PROPERTY INVESTMENTS
If you have overseas property investments, you may be worried as travel is restricted and most of Europe and the US goes into lockdown.
One thing you can do is to make sure the financial side of your investment is secure in the face of volatile foreign exchange markets. If you take out a forward contract with a currency broker, you can lock in the same exchange rate for up to twelve months. At least this way, you’ll know what you’ll be paying instead of taking a chance on whatever the exchange rate is on the day of transferring money.
If you’re used to being able to travel to your property in person, it would be wise to try and find a local agent to act for you. As we don’t know how long travel restrictions will apply, it may be necessary to have someone on hand to manage your property.
If you own apartments with communal areas, you’re likely to have building management in place already, and you could arrange to extend this to cover your apartment.
THE IMPACT ON UK PROPERTY FUNDS
In light of the volatile market, some asset managers have suspended trading in their open-ended property funds. Managers of these funds want to protect customers by ensuring they don’t make payments at a time when they’re unsure of the value of underlying assets.
Some managers have said that the coronavirus crisis has made it impossible to value buildings they own. Therefore, many funds have been closed, and it’s likely more will follow. Suspensions will be lifted as confidence returns to the market and managers are more certain of asset valuations.
RECOVERY WILL BRING OPPORTUNITY
While property investments have been subject to the same disruption as every other industry, there’s still plenty to be optimistic about.
This country is still short of housing, and the construction industry is likely to be incentivised to get things moving again quickly. Meanwhile, there’s strong need for quality rental accommodation.
With continued demand for residential development sites and build-to-rent investments, when activity resumes, they’ll be plenty of opportunity for property investors.