Post-pandemic property market

William Marriott

Thanks.  Well, it’s great to be joined today by James and Oliver from Knight Frank.  James is Head of Country Business and Oliver is Head of the South East and Channel Islands department.  Hayley Lalsing is from Charles Russell Speechlys and a Senior Associate in the Private Property Team and I am William Marriott and I am Head of the Private Property Group at Charles Russell Speechlys.

Thanks very much for coming along today.

Oliver Rodbourne

Good to see you. 

James Cleland

Pleasure.

William Marriott

So, I think just as two sort of international global businesses, it would be interesting to hear your take on the international scene post-Covid, what properties look like and perhaps starting with some international investment into the UK property wise.  How are you feeling about that?

James Cleland

Well it’s been interesting, here we are sitting what the beginning of September and having had almost no overseas travel for what 18 months, suddenly it just feels like we’re right on the cusp of it all beginning to come back; so international travel is off and away.  It feels like overseas buyers while they may not yet have charged back into the UK, it just feels like they are about to, the enquiry levels are up.  A lot of the overseas buyers I think are still concerned they are going to come over here and catch Covid or they will have to quarantine excessively when they get home, so that’s slowing things down a bit.  I guess there is still a bit of concern about new variants and so on and so forth, but definitely, and I think you are experiencing this as well Ollie, definitely it’s beginning to happen.  We had a week last week at the Wentworth Estate over in Virginia Water where we sold three big properties in one week and that hasn’t happened for, well certainly since before lockdown.  I don’t know, Ollie, what your feelings are on that?

Oliver Rodbourne

Yeah, I mean it is interesting.  So during the sort of peak of the crises the international market obviously just ceased and then probably I’d say in the last couple of months I am starting to get people, you know, calling in from foreign numbers and saying look we are planning on coming over and we’ve noticed this on your website, and then the next question is when can you get here and when is the trip planned, they haven’t been able to do that yet but as James says, that wheel is starting to move and, you know, fingers crossed we don’t go into another sort of lockdown and I think it’s just a matter of time before it all starts to pick up again.

William Marriott

Yeah, and obviously the national market, the buyers from the UK, we all know has been pretty hot.  Stamp Duty Land Tax has obviously been one of the injections of some pace for us all and a very mad June for the lawyers.  How are you finding the domestic market at the moment and how do you see it for the rest of the year?

James Cleland

Still very busy, I mean June was crazy for everybody wasn’t it.  But actually our August has been really busy as well, that’s both with getting deals across the line but also for August, quite a lot of new deals which is interesting.  Buyer numbers we measure lots of different metrics against the five-year average.  So buyers numbers are still much higher than the five-year average, so we’ve got lots of buyers which is nice.  Stock is still quite low, which is both good and bad but it’s a supply and demand thing – there is more demand than supply so I think the market will carry on being really busy.

William Marriott

Yeah interesting.  And are you, I mean you are often sort of three months ahead of the lawyers in terms of transactional or transactions coming ahead and people making deals and all that sort of stuff.  Are you thinking its busy towards Christmas and then looking good for Spring or?

Oliver Rodbourne

It’s really hard to predict more than about three of four months because the environment can change so quickly externally.  All I am sort of saying to clients and buyers at the moment is I think we can probably see the next three or four months but let’s not talk about next year until we get a bit closer, but certainly I think, you know, just in the week that I’ve been back from holiday, you know, the clients that we are seeing are the questions are different, you know, beforehand it was an update, now its we really want to get going what about 6 September, what about country life and various other things.  So their mind set has definitely changed.  It would just be interesting to see how many people we now see over the next few weeks, I think that’s the litmus test is to see how much stocks going to come on.

William Marriott

So we obviously act for banks as well.  Hayley, how’s it been on the banking side?

Haley Lalsing

Yeah, it has actually been really busy with the private banks, their working on a lot of lending matters and I was just interested to find out from you guys whether you had seen any changes to lender requirements and things following the Covid-19 pandemic.

Oliver Rodbourne

Certainly initially, yes, it feels less so now – they, like most industries and most businesses, have probably relaxed a little bit more.  Again, like all of us, they are sort of finding their feet aren’t they, they are sort of seeing how the land lays.  I think, you know, probably over the last few years banks have become less and less of taking a view on problems of properties and I think that has been even more heightened over the last sort of six to nine months – I hope they probably become a bit more relaxed going forward – but we’ll see.

William Marriott

Yeah interesting.  So just going back to sort of the country markets, obviously both of you are heavily involved in the country markets as are we.  In terms of the London dynamic and the London versus city, can you tell me how that’s going and think?

James Cleland

It’s best encapsulated by the race for space.  So if you’re in a one bedroom second floor flat in London, you would rather be in a ground floor flat or a flat with a balcony.  If you’re in a ground floor flat in London, you’d rather be in a terraced house and on it goes until you get to the sort of big estate or whatever it is, and that has been exactly the issue in London.  So your prime central London areas which would naturally sell to overseas buyers and the flat market have been really tough.  The suburban areas, the Southwest London, the Wandsworths, the Wimbledons, the Fulhams I guess, really, really busy mirroring how it’s been with us out in the country.  In the last three or four months, London has been fantastically busy, London had a dip and it’s now roaring out of it, so it offers very good value actually at the moment.

William Marriott

And Sellers are obviously aware of this, they know that people are looking for space and they therefore think their houses are probably worth X and you have to tell them that they may be worth only Y.  How are you finding you are managing that and is there is a huge disparency between what people think their houses are worth and the reality?

Oliver Rodbourne

I suppose with country houses they are unique by their nature, so often I would say the majority of clients have a feel about where their house is worth and there are some people which obviously will always but that trend regardless.  I think the message probably with the lack of stock has sort have gone through the market in the sense that the sellers realise there is a lack of stocks and just the chats around the dinner tables and things like that means that they are aware that that race for space and arguably, you know, 14/15 months ago there was the panic button wasn’t there, as soon as we came out I think it was on 13 May, there was almost this initial wave of no one is ever going to live in London again which was just crazy.  That has certainly settled down, so funny enough we’ve had people that were due to move out of London that have now gone actually maybe it’s not quite as bad as it was and we could do another few years here.  But, you know, as James mentioned, that process about space has just been heightened even more because of the pandemic.

James Cleland

And the houses which have a particularly nice setting, and this is at whatever level of the market, wherever it is, seem to be doing exponentially well.  So they are the ones that will generate competition and there are lots and lots of stories of how starting at guide price A and ending up at guide price A plus whatever percent, crazy numbers.  But equally probably the bulk of the market, houses have sold well rather than crazily well.  Our research team reckon prices have gone up by 10% in the country over the last year, which is fantastic and their forecast it will probably settle and be 4% this year, 4% next year something like that, but who knows.

Oliver Rodbourne

Yip, who knows.

William Marriott

And that’s quite conservative I think, I saw on the news just yesterday 12% was the national average that was given.  Extraordinary. 

James Cleland

But nobody really knows where it’s going…  I think properties which are on water for instance or have a lovely view or are dead quiet, I think properties like that will, they have always sold well, but now they will always sell even better than they’ve always sold if that makes sense.

William Marriott

I think it makes perfect sense, it is fairly obvious if you think about it. 

James Cleland

It’s obvious isn’t it.

William Marriott

Yeah, the opportunities, that’s great.  And Hayley, in terms of the banking valuations, have you found over the last year that banking valuations have been slightly more conservative?

Haley Lalsing

To begin with at the beginning of lockdown they definitely were, but I think now it has kind of evened out, and the prices that people are paying is been reflected in the valuations.  So yeah, we have definitely seeing that.

William Marriott

That would help…

James Cleland

Who’d be a valuer at the moment?

Haley Lalsing

Definitely, it is very tricky job.

James Cleland

Not easy.

Haley Lalsing

A tricky job.

William Marriott

Absolutely.  You may have read and certainly in the legal press there is the Form TA6 which is the transaction forms that we use to give the property information, so it is a property information form generally known as.  They are now referring to that as Part 2 having included a Part 1 form and the Part 1 form strikes back to the days of home information packs which sends most of us into a spin because they were something we tried, invested in and then fell hopelessly by the wayside.  But the principle of these is to try to get together as much information about the property that will help a buyer make a decision both in terms of an offer but also get a head start to the transaction process.  How do you feel about those?

Oliver Rodbourne

I think they are long overdue personally, you know, for most people their property is their one number asset, it’s the biggest asset they will ever own and the idea that you can just put a house on the market tomorrow without any form of preparation is a little bit odd in this day and age when most other things you do there is so much paperwork.  And actually, you know, we as agents we want the industry to be as clean and as transparent as possible and certainly if you are able to present a property to the market and your client has been open and honest about a restrictive covenant for example, then you are able to deal with it in the correct fashion, there is nothing worse than this information being hid.  So, this I think is absolutely the right way forward.  The tricky part of it is probably how they will implement it because properties as we all know are so different.  So, if the forms are too general, I think people then won’t really look at them and if they are too precise, then how many people will as get involved as they should do.  So, you know, there is going to be probably a feeling out process I suspect, but the principle behind it I think is absolutely the right way of going forward, you know.

James Cleland

And there is an advantage to a vendor, ignore the buyer for a second, there is an advantage to a seller in going to the market hopefully with a good agent appointed, hopefully with a good lawyer appointed, but then being prepared and having your pack ready so that when you’ve found a buyer under competition, you can turn around to the buyer and say there you go, right exchange contracts please. 

William Marriott

Well we have obviously been doing that for some time or trying to do that for some time when we are acting for sellers, and it’s amazing how often we find a gap that needs plugging before it goes to market and to be able to get moving on that whether that’s getting an express right of way sorted out or a hole or something in a search that isn’t quite right, being able to do a suite of search is check those through really helped and it means when you guys get a deal a say we need this done in 48 hours, it becomes a possibility.

James Cleland

Time kills deals, time allows everybody to think and reflect and find fault, because that’s just what people do.  So the more organised one is and the more you deal with the issues right at the outset the better.  But the vast majority of people don’t do it, so if this helps to change that, it would be a game changer for our market I think.

Oliver Rodbourne

I mean look at, you know, if you are selling a car, second hand car, you know, you will look at the colour and you will look at maybe the engine spec but after that it’s like when was the last MOT, when was it last serviced, let’s have a look at all the history of it and you would be foolish in this day and age to buy a car without having a look at the credentials.  Now cars are probably a little bit more systematic but at the same time a car is worth no where near what a house is worth, so as I said I think it is long overdue.

William Marriott

Yes, and bar some cars, they are not nearly as exciting as some beautiful houses I guess.  So lettings, can we talk about lettings for a bit?  What’s the current market for lettings?

James Cleland

So same drive as the sales market, race for space, very similar and actually the sort of the top end of the Surrey market in lettings has been much busier than the top end of the sales market, and our lettings team have been sort of letting a lot of our super prime houses from under our noses, be it short let or long let.  So that market was, and particularly when we first went into lockdown, there was a massive demand for high value rentals.  So that’s been very strong.  In London, again probably broadly similar to sales market although in the last few weeks suddenly turned, overseas students are back for the first time, they weren’t here this time last year, so they are now back and back with a bang.  So that market has been really, really busy which is great.

William Marriott

So the high value country lettings that are going on, is that people trying before they are buying?  Or is it a hesitancy to…

James Cleland

It’s probably a bit of trying before you buying, it’s bit of I want somewhere where I can go and, you know, have a nice time, have some space and that’s for the lockdown related query.  But probably a bit of both.

Oliver Rodbourne

And there is also, you know, if you’ve sold and you know you’ve gone and got a very good price in the last 12 months and you’ve got nowhere to go, people have said okay for that value we will go into lettings, we will rent somewhere because we don’t want to, you know, jeopardise the deal as such.  But then that’s created its own problem because again we are back to the lack of stock.  So a lot of our clients that we are sort of seeing are saying it’s all very well you can sell my house but where do I go to, you know, there is nowhere to buy, there is nowhere to let.  The other thing is that a lot of those people that came out of London saying you know we’ve seen this house on the market, would they be interested in lettings, most of the time in the country the answer is no, because that’s their primary residence and if they let their house out, they then have got to go and rent somewhere so it doesn’t make any sense at all.

William Marriott

Interesting.  So supply and business and house building generally, you talked about supply being lower than the demand at the moment which obviously helps with some inflationary prices.  In terms of house building, I know Knight Frank obviously do a fair bit of advising clients on that?

James Cleland

House building supply is good, plenty being built, the issues being with the supply chain, the cost of, you know, materials has been much higher, so that’s been a big issue.  There is a big build to rent market, which is really good, so yeah.  Certainly, there is the supply, there is the supply there more than there is in the second-hand market.

William Marriott

Which presumably lends an opportunity to people owning a portfolio or wanting to own a portfolio to let.

James Cleland

Very much so, absolutely right.  And if you the right product that will rent well, again going back to the race for space idea, you’ve got that then off you go.

Haley Lalsing

Is there is a bit of a backlog as well with Covid delays in the building?

James Cleland

I think there has been, that’s now beginning to ease off, but yes absolutely there has been, very much so.

William Marriott

Well certainly a lot of my clients who haven’t moved and have decided to extend have experienced real difficulties in terms of getting materials, plaster, timber apparently is three times the price it was a year ago I hear anecdotally but…

Oliver Rodbourne

Bags of cement were going on eBay at £50 a bag apparently back in that two or three months ago when they are normally, I don’t know, £5 or something.  So yeah, and also, you know, even if you try and get a labourer to come and, you know, do a minor job on your house, they are telling you three or four months before they can even come round and give you a quote, so…

William Marriott

Well hopefully that will force people to do a bit more moving.

Oliver Rodbourne

Yes.

William Marriott

Thank you very much indeed for joining us, thank you for the chat – really interesting insight.

James Cleland

It’s a pleasure.

Oliver Rodbourne

No, no problem at all