Real Estate

UK’s amazing real estate rally

Headquarters of the Bank of England (left) in London
Headquarters of the Bank of England (left) in Londonimago images / ZUMA Wire

The corona crisis hit Great Britain harder than almost any other industrial nation. The country will experience the biggest economic slump in more than three centuries in 2020, the British government announced in November. For the current year, the Ministry of Finance expects economic output to decline by 11.3 percent. In view of these dimensions, the development on the British real estate market seems almost paradoxical: Since the beginning of the year the prices for houses and apartments on the island have risen by 6.5 percent, according to the highly regarded index of the Nationwide building society. In August real estate prices rose as sharply compared to the previous month as they did 16 years ago. “The lockdown and other restrictive measures generally had no negative effects on property prices,” says Lukas Endl, Managing Director at the real estate financier Linus Digital Finance.

On the contrary, the fact that they actually increased is due, among other things, to the backlog of demand at the beginning of the year. “In the summer, many transactions were made up that had to be postponed in the spring during the lockdown,” says Endl. Owning a home is still attractive: “People want more space, more green spaces – that motivates many to buy their own property in peripheral locations, which drives up prices there,” explains the expert. In Great Britain, in particular, the government has increased the limit for the so-called stamp tax as part of its Corona stimulus package. Real estate purchases up to £ 500,000 are exempt from the tax until the end of March 2021.

Continuation in the coming year remains questionable

It is questionable, however, whether the rally in the UK real estate market will continue next year. The Center for Business and Economic Research writes that there could be another spike in the first quarter of 2021 just before the stamp tax cut expires. For the year as a whole, the experts expect house prices to drop by 14 percent. The British Office for Budgetary Responsibility, which makes forecasts for the government, even believes that in a worst-case scenario a price drop of 17 percent is possible. In addition to the return to the old stamp tax regulation, the officials cite the expiry of the corona-related short-time work program as reasons. In October the government stopped the measure. Whether there will be a successor is open.

Real estate expert Endl from Linus Digital Finance also anticipates a flattening of the dynamics on the real estate market, but advises a differentiated view, especially for multi-family houses and residential complexes. Basically, the further investors move away from London, the lower the prices. Large apartments in central London have recently lost value. After the crisis, however, a recovery can be expected, says Endl: “London’s housing market remains interesting despite the high actual prices. Moving out of the city center will not remain a long-term trend, ”he is convinced. Accordingly, many investors would have the market in view.

The expert also finds the market for logistics real estate exciting. Covid-19 and Brexit should strengthen this area in the short term, in the long term it will benefit “from the megatrend towards e-commerce anyway,” says Endl. For example, private investors can invest in the sector through funds. In February, for example, the cooperative provider Union Investment acquired a portfolio with 19 logistics properties for its UniImmo: Europa and UniImmo: Global funds.

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