The state of the UK property market pales in significance to the human tragedy unfolding in Ukraine. However, the sheer scale of the crisis and the severe economic sanctions imposed on Russia have left many experts questioning what financial aftershocks Britain can expect in the months ahead.
While it is very difficult to predict the twists and turns down the road as the conflict develops, the first few economic signals are apparent already. In this week’s blog, we’re examining the potential effects of these on the future of UK property and asset management.
The COVID-19 pandemic has been a primary factor driving excessive inflation through demand and supply-side distortions. The current inflation rate is 5.5 per cent – a 30 year high that was expected to calm as the pandemic eases. Unfortunately, due to the tragic situation in Ukraine, the Bank of England warned inflation could hit 7.25 per cent by April.
At a time when the inflationary crush is already causing a cost-of-living squeeze that’s pushing up fuel and grocery bills – this is set to be a financially difficult time for many Britons. That said, unemployment remains low and economic activity has been improving. A key question in the coming weeks and months will be to what degree ‘supply-push’ inflation weighs on economic growth.
Impact on Property
While some experts believe that the rise in house prices we have seen in the past years will slow down as a consequence – early anecdotal evidence suggests that the conflict will have a limited impact on the UK’s appetite for property. With too much demand and too little supply, it’s highly probable that house prices will remain high – something that is unlikely to change until housing stock is meaningfully replenished by the Government and the big house builders.
Supply and demand conditions are key to pricing power and the ability for rents to match, or exceed, inflation. In the current climate, Build to Rent residential and industrial space is especially well positioned. The office sector – specifically those high-quality assets – will also prove to be particularly resilient, as these assets are set to benefit from higher utilisation post-COVID.
Over the past two decades, London’s high-end property market has been synonymous with the superrich Russian investors. With so much of the country’s capital under the ownership of oligarchs, locals have dubbed the city “Londongrad”. Since Putin’s soldiers invaded Ukraine, the focus has shifted to these high-profile figures with apparent ties to the Kremlin.
In response to this, the Government has fast-tracked a bill that aims to reveal the true identities of property owners who have previously used shell companies registered in tax havens, such as the British Virgin Islands, to disguise ownership. This decision marks a significant departure from the era when anybody could invest a small fortune in London real estate while remaining anonymous on title deeds.
A Russian exodus?
If sanctions and pressure get more serious, then it is possible that we may see some Russians deciding to sell their London homes. This creates two key questions; how much of the city can we expect to be put up for sale? And how will this exodus affect the property market?
Since the invasion, agents and lawyers have started treating wealthy Russians cautiously, this will therefore hamper the ability of oligarchs to sell property in the present climate. Simply put, individuals affected by the sanctions are not going to get representation from a selling agent.
With claims of sellers offerings 30% below market rates, opportunistic London buyers have already begun hunting for Russian bargains, several agents say. Although more property might become available and the influx of stock is likely to depress prices in what are otherwise exclusive enclaves, the downward pressure on prices should be limited.
As Russians are forced to sell their UK assets, we’re already seeing an abundance of billionaire investors arrive from Brazil, India and China. These tycoons will quickly displace the sanctioned oligarchs, hence why it’s safe to say that a major exodus of Russian money from London will have a minimal impact on the property market.
Real estate is a long-term asset class. The ultimate path from both an economic and wider social and security perspective is obviously unknown; this is why Targetfollow have championed business agility since the company’s 1992 inception. Although there are obvious challenges in the months ahead, we will evolve and reconfigure where necessary – aiming to become a stronger, more technologically cohesive company.