One in five property sales underway in London when the Covid-19 pandemic struck have fallen through, meaning the vast majority of buyers and sellers have held their nerve.
While government restrictions mean that physical viewings are not allowed, Covid-19 clauses are among a number of measures being used to ensure that most transactions are, for now, holding together.
“There is a surprising amount of activity in the London market”, said Henry Faun, Head of London International Projects Sales MENA at Knight Frank Middle East, who confirmed that 80% of transactions were still set to happen. “Most buyers are prepared to wait out the current situation globally and proceed with their purchases. The attractive exchange rate remains a key attraction for Middle Eastern investors to purchase into the UK property market”.
Despite this relative resilience, government restrictions following the Covid-19 pandemic have severely limited the number of new deals starting. This will be reflected in transaction figures that are likely to be far weaker than normal in June and July, by which time some Coronavirus measures may have been relaxed.
So-called “Coronavirus Event” clauses have been written into contracts to protect buyers and sellers from claims that may arise due to Covid-19-induced delays. Such clauses typically cover anyone involved in the buying process having to self-isolate, disruption to Land Registry searches and removals, as well as the ability to transfer money or sign documents.
Furthermore, completion dates are typically left flexible and can be reviewed on a rolling basis and the use of long-stop completion dates means that after an agreed point in the future either side can walk away without penalty. “This can be helpful for Middle Eastern buyer requiring extra time to complete on their off-plan property” commented Henry.
A number of simultaneous exchanges and completions are also taking place, which minimise the risk of anything untoward taking place between these two stages, which are usually several weeks apart. Furthermore, some buyers are paying reduced exchange deposits of 5-7% compared to the usual 10% to minimise the financial risk.
According to Henry Faun “The recent history of the market has also played a part in keeping more deals together”. First, pent-up demand that built in recent years due to tax changes and Brexit uncertainty, is being released by Middle Eastern buyers coming into the UK. Secondly, tax changes have also led to a relative increase in owner occupier buyers of London homes, which explains why more deals are holding together.
The percentage of new prospective buyers that were investor-landlords in January 2020 in London was 4.4%, data based on a three-month rolling average shows. This compares to 8% in the same month in 2019 and 15% in the first month of 2015, as the chart below shows.
“We’ve seen more Gulf based families looking for homes and relatively fewer pure investors,” says Henry. “Combine that with the pent-up demand that has formed and that explains why a relatively large part of our agreed sales are proceeding as usual.”
Although some buyers are requesting price reductions to reflect the added uncertainty created by the Covid-19 pandemic, it is happening in an ad hoc manner and it is not yet possible to evaluate any wider impact on prices.