It’s fair to say that if given the choice, most people do what they can to avoid “icebergs”, a metaphor best illustrated by the ill-fated journey of the Titanic. I am no different. I seem to have developed a natural paranoia to identify and circumnavigate obstacles, adopted through always striving to be a high achiever. However, I like to think it’s also a function of learning the rules of wise investing, the hard way – through trial and (a lot of) error.
The July Jump
The UK government stimulus package triggered by the fallout of the COVID19 pandemic (amounting to approximately £350bn so far and counting) has been staggering to say the least. The consequential impacts that this will likely have on inflation has given me a sense of confidence that real assets prices – in particular property – should be a big beneficiary over the medium to long term. Recent figures paint an interesting picture: according to the latest Halifax House Price Index, residential property prices hit a new all-time high last month in July as the property market gradually reopened after being put on pause during the Coronavirus lockdown. The average price of a home was £241,604 last month, which represents a 1.7% jump month-on-month and a 3.8% increase from July 2019. This mini boom is likely largely due to the release of pent-up demand being released post lockdown with the euphoric recognition of a generous tax break adding a helpful tail-wind.
Aside from the range of measures implemented as part of government stimulus package, the effect of the property stamp duty changes (with no standard stamp duty payable on purchase prices of up to £500K) have arguably compounded a perverse set of dynamics which I think creates a false sense of market comfort.
Between now and March 2021, when the change in stamp duty is due to end, the country will have some serious issues to work through including the 9.6million people (approx. 30% of the working population) that have been furloughed as of 2nd August 2020, the conclusion of an awkward set of Brexit negotiations that is supposed to be completed by year end, as well as the possibility of another wave of COVID infections that could unfortunately coincide with the upcoming autumn-winter cold and flu season.
Due to the lag with which data is typically reported, the effect of how these items work through the system could fortuitously make March 2021 the delineation of that cliff edge moment when the property market takes the short term tumble that seemingly looks to have been delayed but not eliminated. This timing prediction is further justified when one also considers that the transition date for the 2% levy for overseas purchasers in due to come into effect in April 2021.
A Property Prophecy
Hence the market pain that may manifest itself at the end of Q1 next year seems increasingly likely to me, unless the governments does something significant to buffer this (for example extending the stamp duty holiday period), which I think is definitely a possibility given how proactive they’ve been so far to keep the cogs of the real economy lubricated as far as possible, despite the fact that the overall machine is currently only crawling along. I am still optimistic of what the longer term future holds for property particularly in the development sector, but for now, with a bit of poetic license, I’ll draw upon the famous words of the sombre fortune teller from Shakespeare’s classic play Julius Caeser…
“beware the ides of March”