After the turbulence of 2018 – the gloomy housing market; uncertainty over Brexit; and uncertainty over the broader economy – nonetheless, uncertainty often present the best opportunities for investment. The next year may well be when many aspects of the economy start to see the light at the end of the tunnel. So let’s look at some of the factors that will come into play for property investment in 2019.
“Legal AI” will become mainstream next year, making legal services cheaper and more accessible. Towards the end of the year, these reduced costs could start to have visible effects on the way in which people buy and sell property.
In 2019 the adoption of Prop-tech, will continue to transform the market. Traditional estate agents will have to increase their use of technology to match the low fees offered by online and hybrid agents. Additionally, planners, conveyancers and councils are being pushed to adopt technology to improve the building and home buying process. Tech disruption for the UK property market is good; adapting to the digital age and seeking out innovation will improve efficiency and boost the property market.
Brexit and Property Investment
As we look towards 2019, Brexit continues to dominate the landscape for the UK investment market. As I write, chaos appears the order of the day and uncertainty is the only sure thing. Whatever today’s Brexit battle is all about, and on whichever side of it one stands, we all know one thing – there will be short-term volatility. However, there is evidence to suggest that, even a lousy Brexit wouldn’t be the Armageddon some claim. The idea that, for example, no deal would lead to an economic meltdown in the region of 10% is at best highly unlikely and at worst misleading. Stronger banking sector balance sheets, risk-averse mortgage regulations, historically low-interest rates and growing demand for private rental properties and social housing will be more than enough to support the market in short to medium term.
Over the last two years, since the Brexit referendum, we have seen negative forecasts regurgitated and re-released on a regular basis. Remainers and leavers have been talked down the economy and the property market with little real impact. London aside, it’s easy to forget that while growth in property prices has slowed across the UK, prices are still rising.
The north of England has led the way in capital growth over 2018. Organisations like HMRC and Channel 4 relocating their head offices from London to Leeds. One report by Savills, forecasted values in the north-west to increase by 21.6% over the next five years, this confidence should see the north showing resiliency leading up to and after Brexit.
London and the South
On the other hand, London and the south of England are expected to feel the brunt of Brexit in 2019. Property values in the capital have crumbled since the June 2016 vote to leave EU, and property taxes were raised.
However, let’s not get ahead of ourselves. In the past, experts have talked down the London market, only for domestic and foreign investors to move back in the minute value can be found. It would be silly to suggest that Brexit has not created challenges for the London housing market, but it still has strong fundamentals. Prices have yet not fallen anywhere near the doomsday scenarios released on a regular basis over the last two years. Many have written off London as a “boom and bust” in the past only to see the market bounce back.
Buy to Let
2019 for buy to let does not look rosy. Landlord investors have been hung out to dry after a wave of tax and regulatory changes that have hit net yields and raised the costs of investment. Increased stamp duty in the form of a three-percentage-point surcharge on buy-to-let purchases introduced two years ago is one drag on the sector. Changes to higher rate tax relief on their mortgage interest, which is being eradicated in stages, disappearing for good in 2020 is a more damaging move for highly leveraged landlords. All this has caused landlords to question their underlying rationale for investment and pushed out those who pin their hopes on quick returns via capital growth to look elsewhere like property development finance, property lending and other products offered by alternative finance companies.
Property Investment Summary
There isn’t one obvious conclusion to draw from all these factors. Prop-tech will continue its disruptive streak and inject life into property markets. Brexit uncertainty could dampen the UK market as a whole, but it is likely that the effect will be limited to London and the South. Policy changes will squeeze buy-to-let landlords, but this says nothing for other types of property investment.
Property investment is a long-term activity, and while short-term movement in the market does impact investor confidence, the long-term trends are still your friend. There is still a 40,000 shortage of new homes each year in the UK and demand for social housing is higher than ever. Pent-up demand the means the right investments can offer good returns. Good capital growth in 2018 has also brought the North of England into play.
The best advice, as always, is to judge each investment on its merits. Don’t be swayed by unfounded opinions and sentiments – just as there are bad investments in times of plenty, there are great opportunities in times of uncertainty. What’s more, you’ll find them for more attractive prices. Much will change in 2019, but property investment – the right property investment – will remain a good addition to your portfolio.