In January, many professionals were talking up the market, buoyed by the so-called Boris Bounce and predicting something of a cross-sector surge as pent-up demand came to the fore. How swiftly things can change.
The main players in the residential sector are facing a catastrophic collapse in activity. Although technology may provide some solutions, a lack of consumer appetite is likely to remain. The silver lining is an upturn in remortgage activity.
In the residential sector, if you’re a main player in either the S&V or agency side, you’re probably already bracing yourself for a catastrophic collapse in activity once transactions already in train complete. The appetite of mainstream lenders has been hit and Government advice to home buyers and renters is to delay moving to a new house where possible. For some, this could prove to be the final straw.
As a valuation surveyor, you’re used to working from home. But as an estate agency, you have been forced to join them since being told that you are not essential businesses and must close. Prop tech solutions, such as 360 digital camera technology supplemented by the continuing growth in online platforms, are being introduced in an effort to replace physical inspections and viewings. However, the big question is whether there is any consumer appetite as the lock-down measures tighten. If furloughing is not an option, redundancies and lay-offs seem inevitable and could result in significant service delivery issues once normality returns.
On a positive note, there is the prospect of an upturn in remortgage activity as lenders look to capture business with the Bank of England Base Rate being at an all-time low. Also, with issues such as air pollution and flood risks not sitting easily with AVM technology, there are opportunities if you can provide desktop or drive-by valuation products.
One word of caution – most mainstream lenders may pull their higher loan to value products. For those in immediate need of cash there could be an opportunity for short term lenders, and some have already signified a willingness to accept desktop reports on properties worth up to £2m. With distress risks heightened, as a desktop provider you need to ensure that terms of engagement and limitations of liability are clearly defined.
Activity in the commercial sector will be badly hit with portfolio, statutory accounts and bank facility valuation work being the most resilient discipline. A rising demand for restructuring and investment advisory services is likely.
With UK businesses focussing on cost optimisation and maintaining service delivery, activity in the commercial agency sector will also be badly hit. Portfolio, statutory accounts and bank facility valuation work is likely to be the most resilient discipline and there is also likely to be a steadily rising demand for restructuring and investment advisory services. However, any employee-positive redeployment of resources to meet the shift in focus will require appropriate safeguards to be implemented to maintain expected service standards.
Retail, a sector already in a critical condition before recent events, seems set to stall completely. As a corporate landlord, you will no doubt be expecting a significant decline in portfolio returns in the short to medium term.
The private rental sector will face serious trouble with rental receipts disappearing while maintenance and repairing obligations remain. A potential spike in claims against agents who do not take appropriate steps to protect their landlords’ clients and the buildings they manage is easy to envisage.
The private rented sector is in serious trouble. After the legislative changes around taxation and the prospect of far greater regulatory control, the Government’s measure to elongate the period before any eviction process can start (out to three months), coupled with at least one County Court deciding to adjourn all existing proceedings until June, it is fair to conclude that your rental receipts are set to disappear.
One tenancy deposit replacement scheme estimated that this could amount to a short-term loss of £15 billion. Despite this, as a landlord or agent, you will continue to have maintenance and repairing obligations to attend to; we await the MHCLG’s guidance on this. Either way, a potential spike in claims against agents who do not take appropriate steps to protect their landlords’ clients and the buildings they manage is easy to envisage.
New RICS guidance on continued trading during the COVID-19 crisis, with suggested wording for a “material uncertainty” clause, should be followed.
If your business remains active in this sector, you are advised to embrace the very recent RICS guidance and Practice Alerts on continued trading during the COVID-19 crisis.
First, you must ensure to review and, where appropriate, revise your terms of engagement to reflect the remote service offering you provide. Second, as a valuation surveyor (both residential and commercial), you must also carefully consider including reference to “material uncertainty” in all your advice – essentially a very wise qualification of any valuation based on any form of comparative analysis in light of the present uncertainties caused by the current situation. The RICS “Valuation Practice Alert – Coronavirus” has suggested wording.
Also, ensure any restrictions on information and assumptions made as a consequence of restricted access and/or valuation information are clearly stated in your report.
To date, there have been no changes to the current Minimum Terms and, given the public protection ethos, change is considered unlikely.
Finally, a word on the potential for COVID-19 policy exclusions; an entirely understandable consideration given the seismic changes to service delivery that has occurred almost overnight. At the time of writing, we are unaware of any changes to the current Minimum Terms and, given the public protection ethos which underpins them, would not expect that to change anytime soon.