BEST INVESTMENTS UK – Property (PART 6)

BEST INVESTMENTS UK – Property (PART 6)

London Property

Frank Schwartz – HULT Private Capital

One opportunity that has been seen is that in the second quarter, prices in PCL fell by only 1.1%.  This minor drop is a good sign in that even with an economic downturn there was a relative absence of sellers and those that did sell needed to sell during the COVID crisis with limited buyers having to take only slightly lower than standard offers.  It also allowed a buying opportunity for those that have the funds to offer.  Some of these lower-priced properties may still be available, especially if he travel restrictions remain.  

Travel will eventually return, and the wealthy will come back to the city or from overseas.  PCL will continue to regain the early year’s buzz.  There is some indication that because of the economic downturn, some of even the ultra-wealthy have lost in the global securities markets during this time and they will be looking for safe-haven investments.  This has already been indicated with a store of value asset like gold which has increased in value from $1500USD/oz in mid-March to over $2000 in early August and remaining around $1950/oz since mid-August. 

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The London market has been seen as a safe-haven for wealth do to its relative stability and will likely return to make up a portion of the ultra wealthy’s portfolios; this is why HULT will soon be offering New Private Equity and Bespoke Property Funds with a Trust pilot rating of 4.9, a perfect vehicle for this type of safe investment.  

Is there long term risk of a COVID recession, and what about housing?

Still, there is potential for, and some forecasts of a global economic slowdown post-COVID, and this can negatively affect riskier wealth generation vehicles, like the securities markets.  There are several indicators and historical references about recession and housing that are positive for HULT.  At present, any major decline in high eld London housing prices as a result of the COVID induced recession is unforeseen.  There are four factors underpinning this view:

  1. The recent rise of home prices is slow by historical standards, not a spike, and an increase in forced sales remains unlikely due to continued mortgage payment deferral and forbearance options available to support mortgaged households.  With the push by the BoE, credit remains available for borrowers who are not seeking high loan to value mortgages.
  2. Unquestionably a portion of households have and will be negatively impacted by the economic crisis in the future.  Unemployment, though rising, appears more concentrated in the younger age bands who tend to rent rather than buy and not generally on the high-end market.
  3. Historically the previous two recessions saw prices bid up to a bubble ahead of the downturn.  Housing in parts of the U.K. remains expensive; however, the mortgage regulations introduced in 2004 have restricted borrower’s abilities to bid up housing prices in the run-up to the COVID crisis.  This then limits the downside for housing prices as well.  
  4. The impact on housing and house prices of past recessions has historically had a more significant effect on volumes of housing sales rather than on the levels of pricing.  This can be seen both in the 1990-91 recession, as well as the recession of 2008-09.  These recessions resulted in sales volumes dropping by more than 50%.  The volume of the current housing market is historically low, and 2020 will overall likely be 20% lower as a result of the two-month market closure.

Currency factors

The Pound Sterling has again strengthened against the dollar and is back to 1.28 USD/GPB from its 1.15USD/GBP March 19th low, about where it stood pre-COVID.  The U.S.’s unprecedented printing of money by the Federal Reserve in 2020 and their lingering fight against the COVID virus will likely keep the dollar week in comparison to the Pound.

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The Euro, on the other hand, has been even stronger and exchange of the Euro for the Pound will currently result in 0.92 Pound sterling, nearly equal to the most that has been seen in the past year.

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