I’ve been in property over 15 years and developed several hundred units over many different sites all around the East Midlands and today, I’m going to reveal my predictions for the 2021 property market.
Clearly, everybody knows that the pandemic has had a huge effect on the economy and has sped up the demise of many many markets, in particular within commercial property. Additionally, the demise of retail property has been sped up significantly by the pandemic and with the growth of online retailers such as Amazon supplying direct to the homes means that retail is moving off the High Street, into warehouses and into industrial units on the edge of towns and a result, this has hugely increased the demand for warehousing for distribution.
But, here’s the thing, for all those industrial units that you might be looking to invest in, despite what most of the so-called ‘property experts’ say; property has actually gone up this year significantly.
Most experts were predicting either a shallow fall or a significant crash and the demand for residential property outside of the big cities and in the provinces has increased significantly.
Lots of people want to move into different sized homes in different locations because they’re not having to commute as far with the pandemic. Additionally the Stamp Duty exemption for purchases up to £500,000 has clearly reignited the market and pushed it forward.
Okay, so on with my Property Market Predictions for 2021.
The first thing that most people love to ask me is ‘what’s going to happen to property prices?’
Are they going to go up or are they going to crash? But I think that the wrong question to ask, I think that there is no market professional or property expert who supposedly knows what they’re talking about that actually knows the answer to that question.
And I think it’s a naive question.
I think, to be focusing on where property is going to go up or down is the wrong thing to be looking at. What you need to be doing is looking at investment strategies that work in all markets because it is unpredictable. Nobody knows what’s going to happen to interest rates, nobody knows what’s going to happen in terms of government support.
The government has ploughed loads of money into the economy, they’re printing loads of money and that has given support both to the employment market, the property market and the wider economy. But here’s the reality, there are two types of investor; those who can’t time the market and those who know they can’t time the market.
Now, a market crash is still possible.
2021 could see a residential property market crash and commercial property market creash, clearly lots of commercial properties have dropped already due to the effect the pandemic has had on retail units.
I spoke to a friend that has recently had a big portfolio revalued and the surveyor believes that the value has dropped by around 20% just in the last year and industrial warehousing is still going up and offices sales seem to be plateauing in this area nationally.
Most market participants are waiting for the office market to move back up because let’s be honest, come the summer the pandemic will be winding down and it’s very likely that people will be returning to those offices. So, this whole theory around the office market being finished and everyone working from home isn’t necessarily true. People are going to start going back to many of their old habits.
Right, moving on with property predictions for 2021
- Increased demand for flats.
I think the first prediction that I’d make for 2021 is they’ll be increased demand for flats, reversing the trend from 2020 where people were moving out of flats and into houses.
- Increased tenant demand in 2021.
The second prediction that I have is that the residential property market and specifically single-lets and HMOs are likely to see increased tenant demand in 2021.
Why is that?
Well, with unemployment predicted to go from around one-and-a-half million to 2.6 million in 2021 according to the bank of England, there would presumably be more people renting and less buying. This trend happened in the last crash and the crash of the early 90s and that’s likely to push rent up and reduce voids.
- Interest rates won’t go up.
I’m now going to break one of my golden rules and make a prediction about interest rates.
I think it’s pretty obvious that interest rates are not likely to go up. In fact, the bank of England has been making noise about preparations for negative interest rate. It’s not a guaranteed, but it is possible that the base rate could drop below zero.
This means you’re going to be paying money to put money into a savings account and potentially a little bit like Denmark some of you may end up being paid to actually take a mortgage out.
That’s pretty crazy. Isn’t it?
- New permitted development rights.
The next prediction I’m going to make is around permitted development rights. It looked like we’d had all of the new permitted development rights that the government was going to introduce, but just it now looks like the government is going to allow developers to convert retail units into residential, even in conservation areas and potentially remove some of the other caveats and controls that local councils have around permitted development.
That’s big news and shows the direction of travel that the government is not done with introducing new permitted development rights for commercial. Also, Brownfield sites into residential that require permitted development rights could include education and lots of other use cases for conversion into residential which for investors in 2021 and beyond is a really really big deal.
- Lending will become easier in 2021.
My fifth prediction is that I suspect lending may actually become easier in 2021 as the fog lifts and banks get to see exactly how this thing ends.
I think it’s clear that as we move through 2021 and unemployment continues to rise that once banks can see how bad it’s going to get and how much support the government is likely to give with quantitative easing and all the other schemes that they are using to pump money into the economy, they will become less concerned and I suspect, make their products even more attractive.
Clearly, all this money printing and the borrowing of cash for spending in the real economy has a real effect. The government has so far spent around £350 billion pounds just on the pandemic. To put that into the whole annual government budget is only £500 billion and they’re due to spend £22 billion just on track and trace which is more than the combined budget of the police and the fire brigade for one whole year.
Additionally, they’ve increased the money supply hugely and with quantitative easing the aim is to try and stave off deflation and hopefully create some inflation but the reality is that asset prices are likely to lift off the back of this QE. So, as we go further into this and we come out the end of it house prices and the stock market may start to lift. But you’re going to see into the next cycle significant liftings as the value of money decreases.
If it’s anything like the last recession, the prices of consumer goods and all of the stuff that goes into the basket for the retail prices index is likely to lift that much that quantitative easing would be reduced significantly and interest rates are likely to go up. But what’s more likely to happen and which was apparent in the previous recession is that asset prices are likely to increase and they’ll be another asset price bubble.
This is a good thing for property investors because it lifts the value of your asset you can achieve good capital growth into the next cycle, plus it reduces the real value of the mortgages and the debt that you’ve got on them.
So, always make sure you’re buying the right stock at the right price and with a very, very good yield and plan to hold it for the rest of your life and let father time look after your investment.
What I learned in 2020 was that when things were bad, things can only get better andpPeople can have a very short-term mindset.
There was lots more motivated sellers in the last recession and we ended up in a situation where there were way more property deals to do because there were so many sellers that needed to offload stock to raise cash. But when the market started to come back after all the QE prices went up significantly but not straight away.
Now, It took a little while because government support was much reduced in comparison to this time around and the reality is though the government can’t keep on spending and can’t keep on offering unlimited support and furlough schemes, so what does this mean?
It means that there is going to be a day of reckoning and the market is going to tighten and those with cash and the ability to move are going to get deals.
So, my plan for For 2021 is to continue as I always have been. I’ve got projects that are underway at the moment that I need to complete, but I will be focusing on making sure we’ve got the best rental products to offer the market because it doesn’t matter how many flats or houses there are in an area If you’re offering the best product at the best price you’re going to fill it and you’re going to reduce your voids.
I’m also going to focus on making sure that I’ve got the right debt on our portfolio that is well priced long term so that we can ride all of the ebbs and flows of the market.
Okay, so those are my predictions for 2021, but what do you think?