Coronavirus: The broader impact – property
In the first of a series of articles, Coutts UK chief investment officer Alan Higgins considers the impact of the coronavirus outbreak on different areas of the economy.
3 min read
In this first instalment we look at what isolation measures and historically low interest rates could mean for the property market.
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Residential property – low interest rates point to potential revival
Residential property has historically been seen as a helpful income diversifier for investors. More recently changes to the taxation regime have dampened its appeal, but is this all about to change?
Well certainly not in the short term. The residential property market is virtually at a standstill as viewings are impossible during the lockdown conditions. But, when the lockdown ends, we think there could be a shift in sentiment.
Firstly, borrowing is very cheap. Interest rates were already low by historical standards, and the economic disruption from containing the outbreak means they’re likely to stay lower for longer. This could encourage new demand for many who are tempted by owning bricks and mortar, either as an occupier or a landlord.
Secondly, low interest rates mean that cash returns are virtually zero, or less if the effects of inflation are taken into account. Investors looking for income may be drawn back to residential property despite changes to taxation.
After the turmoil and volatility in the financial markets this year investors will take comfort from the perceived stability of house prices, which could see investors turn to property as an alternative. Equity market values can move substantially on a daily basis and even unrealised losses – with the potential for reversal and, in fact, a long-term gain – can make investors fretful.
Of course, property prices would also be volatile if they were quoted and broadcast daily. But it’s human nature to seek to minimise volatility and this perception could boost sales and support prices.
Commercial property – a shift in working patterns could transform the market
Commercial property makes up about 15% of the overall property market in the UK and ownership is dominated by institutional investors such as asset managers. It’s a sector we invest in and know well, but it has become polarised and liquidity can be challenging.
Within the UK we have seen the market evolve into three very distinct sub-sectors but we think their prospects may be about to change.
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