686: Brexit and COVID-19 Update - Property Investing Opportunities moving into 2021
Peak gloom was around 21 December 2020. At this point:
• A new Coronavirus mutant strain was confirmed that is 70% more infectious that is causing a huge increase in cases in Kent, London and SE England.
• France closed the borders to trading leaving truck drivers stranded for Christmas
• It was the darkest day of the year – stormy, rainy, dark and cold – Christmas had not begun and London had just been put into Tier 4
• The newspapers were saying there was 80% of a new deal for Brexit
• The FTSE100 dropped and the Sterling sank on the latest news
Roll on four days and things look a lot brighter:
• The Brexit deal was announced 23 December – a huge relief to business and supported by all political parties – it looks like a good deal for the UK
• AstraZenica are starting to roll out their vaccine, then second type – which is developed by Oxford University
• The first vaccine as given earlier in December – the first in the world – to an elderly lady in Coventry – the UK vaccine roll-out is developing momentum as elderly people are invited in
• The borders with France have been re-opened and the truck movements have started again – bolstered by a free trade Brexit deal
• It’s started to get lighter with longer days – as we moved towards the March 21 equinox
• People have started to look forward to 2021 – with the vaccine expected to lead to lower COVID-19 cased and the summer season likely to lead to a big drop in cased on top – hopefully by May 2021 COVID-19 will be behind us
Trends Could Reverse Partially Reverse: For property investors, we have outlined in previous Special Reports like home working, gardens becoming more important, shopping habits - these big shift in trends caused by Coronavirus. But longer term, part of this trend will reverse and people will again want to live in vibrant exciting cities like London and Manchester. Some of the people who have moved to rural areas will get bored and want to return to the city.
Brexit Deal: The Brexit deal and a strong Tory majority are likely to boost investment in the UK in 2021 and will are likely to see by mid 2021 a further influx of foreign nationals wanting to settle in London.
You have to remember that London – again – was voted the best city to live in the world in the last few weeks It tops New York, Paris etc. The lack of a services sector deal as part of the Brexit deal is a concern, although most people thing something will be negotiated in 2021-2022 to facilitate the financial sector growth for both the UK (mainly London) and mainland Europe (e.g. Frankfurt, Paris etc).
Smart Money: The smart money is now buying West London prime flats as bargain basement prices – off the back of Sterling’s decline, subdued house prices and huge quantities of global currency printing that has caused a flood of low cost cash – needing a home in higher end property.
You would be forgiven for thinking a nice 2 bedroom flat in Kensington without a balcony of garden is what people “don’t” want at the moment. But by mid 2021 – when the international super rich start arriving in droves again – then prime London prices will likely start rising sharply. Cash buyers wanting to park the billions that Central Banks have handed out in ultra-low cost currencies to help prop up the global economy during COVD-19.
Fiat Currency Printing: Every time there is a crisis and/or a recession, we see Central Banks in an orchestrated was – electronically printing their fiat currencies to create the illusion of growth, bail out underperforming businesses and governments-councils and trying to stave off higher unemployment. They will then try and re-coup this fit currency in the form of higher taxes. And the money merry-go-round continues.
Double Dip - W Shaped Recovery: Normally during a crisis there a two big dips. For COVID-19 for the UK, probably the first was probably around 18 March 2020 when the stock market and oil prices tanked after panic set in. Then a further dip by 21 December after the threat of a disorderly Brexit No Deal and a new strain of coronavirus was confirmed and externally communicated to the world.
The cases of Coronavirus in the UK continue to rise though so far the fatality rate has not risen so sharply – probably because of a number of factors:
• Better experience and improving health care – processes-procedures for treatment if Coronavirus
• The most vulnerable are starting to get vaccinated – once the 20% most vulnerable have been vaccinated end Feb 2021, around 80% of the potential deaths could be averted (following the 80/20 rule statistical principle)
• There are less very vulnerable mainly elderly people around now since many of them very regrettably died in the first wave in 2020
• Most general immunity is being built up within the population and a greater proportion of people have historically been infected and/or have fought off the virus and built immunity
For the next few weeks we expected cases to rise though the levels of fatalities to break the normal infections to fatality ratios – meaning fatalities could be level for a while at an average of ~750 while cased break out well over 50,000 cases a day. This would be mean less than 1.5% of infections lead to fatalities.
Stay Focussed: Its obviously imperative people stay very focussed on trying not to get this deadly virus by wearing masks, social distancing, washing hands, ventilating rooms properly and trying to avoid contact with people to both prevent ourself transferring it and you getting the first place.
Hospitality Services Boom mid 2021: Hopefully after the vaccination programme is well advanced end March 2021, and the summer warmer-sunny season starts the UK– we will get back to normality. If things go well, we could see a big increase by say May 2021 in the following business activity:
- Hospitality – events - concerts
- Night clubs
- Airline flights
- Ship cruises
- International travel
Partying starting mid 2021: Like the “roaring 20” after 2 years of Spanish Flu 1918-1920 – we could see a skyrocketing activity in people “enjoying themselves together”. One could argue right now, the smart money is buying bankrupt night clubs at bargain basement prices for example. We think the extreme caution end 2020 will rapidly reverse into “party and social behaviours” to make up for the lost year. We saw this first hand in Columbia after the civil war ended 2006 – Bogota city partied like never before.
Avoid Conventional Offices Commercial: For property investment, we don’t advising jumping into commercial property though – since the whole landscape has changed now that the precedent of being able to work from home for many has been set. We expect far less city office space to be required, likely around 65% of pre-COVID levels – putting a huge dampener on office rents and expansion plans. Older office blocks are likely to become derelict – and may become opportunities for demolition and replacement by residential homes and flats.
Artwork courtesy of HackneyContemporary.com
Internet Shopping Boom: The retail landscape has also changed – with a massive acceleration of internet based retail spending, meaning out of town storage-logistics centres expanding and in town-city shops going by the wayside – a massively reducing demand smaller shops in town centres. Again, the property investment opportunity is efficiently converting shops into flats since they benefit from having the following services already provided:
- Electricity, gas, water, sewage - including meters
- Good pedestrian access
- Occasionally allocated parking at the rear
- The framework of a solid building to convert - walls, floors, stairs, rooms, ceilings
- Often storage rooms upstairs that can easily be converted to residential rooms
- Planning permission – though you may need to apply for further permission to change the use – though this requirement is being reviewed at this time.
We hope this Newsletter has helped give some insights into the property investment landscape end 2020 as the second Coronavirus wave hits and we look forward to 2021. If you have any queries, please contact us on firstname.lastname@example.org