COVID-19 UPDATE: EMERGING FROM LOCKDOWN - IS A RESIDENTIAL REBOUND ON THE CARDS? AUGUST 2020 | JENNET SIEBRITS, HEAD OF UK RESEARCH - CBRE ...
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COVID-19 UPDATE:
EMERGING FROM LOCKDOWN
I S A RE SI D ENTIAL RE BO UND O N T H E CARD S?
AUGUST 2020 | JENNET SIEBRITS, HEAD OF UK RESEARCH
©2020 CBRE
LIMITED 1 AUGUST 2020 | COVID-19A SUMMA R Y OF T HE ST OR Y SO FA R …
There have been more twists and turns in the first half of 2020 than on a roller coaster. But, we now appear to be emerging from the Covid-19 lockdown
relatively unscathed. Following two months of inactivity, the housing market is showing signs of bouncing back, with a pick-up in approvals, sales and price
growth. This resurgence reflects the rel eas e of pent-up demand of those buyers stymied by the Covid-19 lockdown. We expect this momentum to continue in
the short-term, further boosted by the stamp duty holiday.
The stamp duty holiday
announced on 8th July is a
But mortgage approvals welcome incentive, with 9 out of
increased fourfold in June 10 sales now being exempt from
Strong start to 2020
and property prices this levy
for the residential
increased by 1.7% in July
property market
There will be fewer new build
And the CBRE completions in the next few years,
experience mirrors wider with many developers reporting
Sales fell by around a half
trends, with the market capacity at around 60-70% due to
and approvals sank to an all
now stronger than July social distancing rules
time low in May
Source: Bank of England (BoE), HMRC
2019
©2020 CBRE
LIMITED 2 AUGUST 2020 | COVID-19THE YEAR STARTED STRONG LY…
It was a strong start to 2020 for the residential property market. Mortgage approvals hit a six year high and price growth returned to London. However, this
momentum came to an abrupt halt mid-March when the Government introduced a lockdown to help prevent the spread of the coronavirus. As a result, around
370,000 home sales were put on hold; sales in April and May fell by around a half and approvals sank to an all time low of 9,300 in May, an 85% fall year-on-
year. Zoopla estimates that around 124,000 sales were lost as a result of the lockdown.
London Average House Price
UK Mortgage Approvals for House Purchase 25%
76,000
74,000
20%
Year-on-Year Change
72,000
70,000 15%
68,000
66,000 10%
64,000 5%
62,000
60,000 0%
58,000
(5)%
56,000
Jul-13
Jun-16
May-12
May-19
Oct-11
Oct-18
Mar-11
Mar-18
Feb-14
Sep-14
Aug-10
Nov-15
Aug-17
Jan-10
Jan-17
Apr-15
Dec-12
Dec-19
May
May
Jul
Jul
Apr
Jun
Oct
Apr
Jun
Oct
Aug
Nov
Dec
Aug
Nov
Dec
Feb
Mar
Sep
Feb
Mar
Sep
Feb
Jan
Jan
Jan
2018 2019 2020
Source: BoE, ONS
©2020 CBRE
LIMITED 3 AUGUST 2020 | COVID-19B UT NOW THE B OUNCE B A CK B EG INS
In mid-May the lockdown rules were eased and estate agents re-opened. And despite the weak economic backdrop, the housing market has rebounded. The
latest data are hugely positive, with a fourfold increase in approvals in June and based on the number of Energy Performance Certificates (EPCs) submitted,
the number of weekly transactions in England is back to pre-Covid levels. Additionally, data suggests a 1.7% increase in UK house prices in July, reversing
the fall in June. As a result, annual house price growth recovered to +1.5%. This renewed vigour partly reflects the release of pent-up demand with those
buyers thwarted by the lockdown now re-entering the market. In addition, there is some evidence that lockdown has made household re-evaluate where they
are living. According to a Nationwide Building Society survey, 15% of people surveyed said they were considering moving as a result of life in lockdown.
Existing New Average House Price Annual Change
40,000
£224,000 4.0%
35,000 3.5%
£222,000
30,000
Average House Price
3.0%
£220,000
EPCs submitted
Annual Change
25,000 2.5%
£218,000 2.0%
20,000
£216,000 1.5%
15,000
1.0%
£214,000
10,000 0.5%
5,000 £212,000 0.0%
0 £210,000 -0.5%
Sep-19
Feb-20
Aug-19
Nov-19
Jan-20
Apr-20
Jul-19
Jul-20
Jun-20
Dec-19
May-20
Oct-19
Mar-20
24-Feb
02-Mar
09-Mar
16-Mar
23-Mar
30-Mar
11-May
04-May
18-May
25-May
06-Jul
13-Jul
20-Jul
06-Apr
13-Apr
20-Apr
27-Apr
01-Jun
08-Jun
15-Jun
22-Jun
29-Jun
Source: EPC, ONS
©2020 CBRE
LIMITED 4 AUGUST 2020 | COVID-19A ND THE LA TEST D A TA IS ENCOUR A G ING
Property portals such as Rightmove and Zoopla are reporting incredibly high demand. For example, according to Rightmove, buyer enquiries were 75% higher
in July 2020 compared with 2019 and the number of monthly sales agreed is up 15% on last year. It also reported that 44% of all properties newly listed in the
first month the market re-opened are already sale agreed, which compares with 34% for the equivalent dates last year. Similarly, Zoopla report buyer demand is
1.5 times higher than June 2019 and 46% higher than pre-Covid levels. The RICS survey is also positive with ‘agreed sales’ at it’s highest since September 2013
and both ‘new instructions’ and ‘new buyer enquires’ at their second highest readings since the survey began. Lonres data show in the last week of July there
were 438 properties were put under offer in prime central London, with 193 sold. This compares with 330 put under offer and 108 sales in the last week in June.
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20
80 61
60 42 43
40
16
20
Net Balance (%)
0
-20
-40
-60
-80
-100
-120
Sales Expectations New Buyer Enquiries New Instructions Agreed Sales
Source: RICS
©2020 CBRE
LIMITED 5 AUGUST 2020 | COVID-19CB R E’S EX PER I ENCE MI R R OR S T HI S
CBRE applicant numbers and reservations have also picked up significantly since the trough of the lockdown period. Since lockdown was eased in May and
estate agents re-opened, new buyer applicants have increased by 66%, while sales reservations were 346% higher than in April. Moreover, CBRE’s performance
in July is now stronger than the same period in 2019.
April 2020 – July 2019 –
New Buyer Applicants Sales Reservations Average £psf Change
July 2020 July 2020
90% 71%
New Buyer
70% +66%▲ +62%▲
Year-on-Year Change
Applicants
50%
62%
30%
10%
Sales
-10% 15%
Reservations +346%▲ +71%▲
-30%
-50%
-70%
Average
0% ▬ +15%▲
Feb-20
Jan-20
Apr-20
Jul-20
Jun-20
May-20
Mar-20
£psf
Source: CBRE Research
©2020 CBRE
LIMITED 6 AUGUST 2020 | COVID-19POL I CY I NI T I A T I V ES W I L L B OOST D EMA ND FU R T HER
The bounce looks set to continue and will be boosted by the stamp duty holiday announced on the 8th July. The holiday will run until the 31st March 2021, and
until then stamp duty is only payable on properties above £500,000. Albeit those buying an additional property, such as buy-to-let, will still be subject to the
additional 3% surcharge. It is a welcome incentive, and with 9 out of 10 sales now being exempt from this levy, it should help stimulate sales and sustain the
rebound in activity. Rightmove reported a 35% jump in annual sales volumes in the five days immediately following the announcement. In addition, the
Centre for Economics and Business Research has estimated that the current holiday could lead to a 6% rise in transactions over the next 9 months – equivalent
to just over 40,000 sales. The government also announced a two month extension to Help to Buy (H2B) to allow for delays caused by coronavirus.
Before 8th July 2020 Current After 31st March 2021
£45,000
£40,000
£40,000
£35,000
£30,000 £30,000 £30,000
Stamp Duty Levy
£30,000
£25,000
£20,000
£15,000 £15,000 £15,000 £15,000
£15,000
£10,000 £10,000
£10,000
£5,000
£0 £0
£0
First-Time Buyer Home Mover UK Additional Home Overseas Additional Home
Source: HMRC, CBRE Research
©2020 CBRE
LIMITED 7 AUGUST 2020 | COVID-19A ND T HER E A R E MOR E POSI T I V E R EA SONS T O B U Y NOW …
The cost of debt is at record lows, which makes it a good time to buy property. Although the number of mortgage deals has reduced, the average mortgage
rates on two and five year fixed deals have hit historic lows (the current average two year fixed mortgage rate stands at just 2.09%). The London new build
market will be boosted by the weak pound, which will encourage overseas investors into the London market. And although exchange rates have reverted to
pre-Covid levels, they still remain low when compared to the end of 2019 and start of 2020.
CNY/GBP 9.3
16.0 9.18
15.5
15.0 9.2
14.5 9.06 9.07
14.0 9.1 9.05
13.5
Exchange Rate
13.0 9.0
12.5 8.87 8.89
12.0 8.9
11.5 8.78
11.0 8.74
10.5 8.8 8.68
10.0
9.5 8.7
9.0
8.5 8.6
8.0 Nov-19 Jan-20 Mar-20 May-20 Jul-20
Jul-08
Jul-11
Jul-14
Jul-17
Jul-20
Oct-07
Oct-10
Oct-13
Oct-16
Oct-19
Jan-07
Jan-10
Jan-13
Jan-16
Jan-19
Apr-09
Apr-12
Apr-15
Apr-18
Source: Macrobond
©2020 CBRE
LIMITED 8 AUGUST 2020 | COVID-19A L T HOU G H, SU PPL Y MA Y NOT K EEP U P W I T H D EMA ND
There will be fewer new build completions in the next few years, reflecting lower capacity due to workers on sites adhering to social distancing rules. Many
house builders are reporting capacity at between 60% and 70% of normal rates. As a result, we expect lower completions coming forward in 2020. However,
many developers are focusing on finishing off stock already underway. Fewer starts in 2020 will have a knock on effect in 2021 and 2022, so the undersupply
may continue for several years. We expect this continued lack of supply, coupled with the Government initiatives, will sustain demand and prices as the
market returns to ‘normality’.
London Total Completions 20 year average
London Plan Target Orginal London Plan Target Latest
New-Build Completions
30,000 Forecast
25,000 45,000
40,000
Completions
20,000 35,000
30,000
15,000 25,000
20,000
10,000 15,000
5,000 10,000
5,000
0 0
1990-91
1992-93
1994-95
1996-97
1998-99
2014-15
2016-17
2018-19
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
Source: Molior, CBRE Research, MHCLG
©2020 CBRE
LIMITED 9 AUGUST 2020 | COVID-19A ND OV ER A L L T HE MA R K ET FUND A MENT A L S R EMA IN ST R ONG IN L OND ON A ND W I L L
CONTINUE TO D O SO…
Resilient Low interest Favourable exchange Strong legal structure Centrally located World class
economy rates rates and asset protection between Asia and education
North America
Favourable Crossrail London population Strong rental London as a Leading
time zone expected to increase demand ‘safe haven’ technology
and research
centre
©2020 CBRE
LIMITED 10 AUGUST 2020 | COVID-19CONTA CTS Luke Mills Shaun Macnamara Jennet Siebrits Max Povinelli Managing Director Senior Director Executive Director Senior Analyst Residential Head of London Dev. Sales Head of UK Research Residential Research E luke.mills@cbre.com E shaun.macnamara@cbre.com E jennet.siebrits@cbre.com E max.povinelli@cbre.com T +44 207 182 2949 T +44 207 420 3087 T +44 207 182 2066 T +44 207 182 2659 M +44 7810 455 950 M +44 7950 778 108 M +44 7985 876 831 M +44 7595 401 550 About CBRE Group, Inc. CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com. CBRE Global Research This report was prepared by the CBRE United Kingdom research team which forms part of CBRE Global Research – a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate. To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at cbre.co.uk/research-and-reports or visit our Residential website at https://www.cbreresidential.com/uk/en-GB. CBRE Disclaimer CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to be material are reserved and cannot be reproduced without prior written permission of the CBRE Research. Please visit our website at cbre.com. © CBRE Limited CBRE 11 AUGUST 2020 | COVID-19
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