UK Property Bulletin - Sept 20th

Another week rolls on as we approach the end of a year at seemingly breakneck speed. Are we ready!!??

A fact-based roundup of what is relevant, which also contains some opinion. As always more than happy to debate and engage with any constructive comments!

Covid is top of the agenda again for all businesses and property. The hardest thing it seems for some to grasp is that there is an incubation period. Very few (thankfully) have passed in the last week of Covid. However, it takes weeks for new cases to turn into new deaths. Take a look at Spain and France and the rising cases and see why people are worried. It feels like we will do everything we can to avoid a second national lockdown and on a personal level I support that. However there is one really important consequence of that. YOU must protect yourself, your family, and others. People are inconsiderate. I've written a long post on this that I shared on my own timeline on Saturday morning. It's worth a read.

I'll just add one thing. Remember the vocal minorities and this puts things into context. I went to the wholesalers yesterday. They have some great food there that normally you can eat inside. For the past 6 months they've moved the tables and made people take away only. Sensible. I was with 2 of my kids and they were hungry so we ate first.

We stood outside in a quiet spot. One of my kids eats very slowly. It gave me a chance to carry out a social experiment that I'd wanted to carry out for a while.

I counted the first 100 people to come out of the store. 94 were wearing masks. 6 were not. The 94 looked nonplussed and some de-masked pretty quickly, some kept masks on until they got to the car. The 6 all looked the same - militant. Angry. Shoulders hunched. All 6 were also purely on inspection in at least one risk category/had one or more relevant comorbidity.

There's a lot of conclusions you could draw from that and I'll leave you to draw your own. My own feelings at this point at the core of it is that the mask is a minor inconvenience and it won't on its own control the spread of the virus. But it is doing something - marginal it may be - and that something is worth doing. Keep calm and carry on, etc.

My own thoughts are that national lockdown is unlikely for the following reasons:

1) the government will be fundamentally opposed to it

2) there is enough arguable evidence that the virus has become less virulent, viral loads are lower, there is T-cell immunity to some extent which is very difficult to measure, and perhaps most important of all - people are aware.

3) the vocal minority are very clear already. There's a big silent majority (IMO) ready to speak around civil liberties and human rights, from a place of reason not conspiracy, should some of the ridiculous laws and proposals come to pass/come into use. There's an incredibly fine line between contingency planning and a police state. I'm not overly worried as yet but it is definitely on the radar and the antennae are tweaking.

IF there is another national lockdown, we will see more stimulus and to an extent, a repeat of what we saw after the first one. I don't think that at this stage there's any point even trying to be any more scientific than that!

Weeks and perhaps a month is needed to see where we are at. On the basis of this year it will go very quickly indeed!

The market in general in property needs some comment. I'm seeing divergence from what, to now, has been an almost national bull market. Some areas have not picked up back to July levels after a brief 2-3 week calmer period in August as people took some much needed holidays. Some are still reporting full throttle. Heuristics are telling me we are 10% calmer than the madness that was July.....can't back that up with hard data though.

This week saw what we thought we already knew and many commentators have been saying since March - interest rates will persist at 0.1% base for years yet. Wholesale money will get cheaper when risk premia calm down. To go full economist here - there seems to be no other answer than Modern Monetary Theory by another name. Here's a few salient points on that:

1) universal basic income has gone from a utopian fantasy to a potential reality. Odds against, but a potential reality.

2) there can and may well be intelligent injections of stimulus into different industries. Like "eat out to help out" which i would, choosing my words carefully, describe as a "resounding economic success".

3) furlough. It looks like something will be done but not on the same scale

4) There's more money to come and the timing of brexit also means that I don't see us really tightening purse strings until h2 2021 at the earliest. The bill will be ever more eye-watering by then.

5) negative base rates are a strong possibility but I don't see us getting paid to borrow money (sorry folks!)

My own take is that the next decade now represents the greatest opportunity for leverage-based asset-backed property businesses that there has ever been. Capital growth is by no means off the agenda because of a) stimulus/asset price inflation b) the interest of the city and large funds in property seems to be rising quickly and c) incredibly low rates of return on bonds etc. Leaves vehicles with regular payment obligations with a problem.

The bond is in big trouble. Bonds have lifespans and when they expire the reinvestment opportunities right now are incredibly skinny or even negative yielding. That isn't acceptable when pension funds have targets of 4-7% growth per annum.

If you have stock portfolios and bond portfolios and your advisors are still advising the old mixes that they have been for years - consider changing advisors and certainly do some shopping around and self-education.

Investment property on the back of this, which is pandemic meets socialist capitalism meets fiat currency meets modern monetary theory, has an incredibly bright future.

So back to what I said earlier - keep calm and carry on! Don't overleverage and don't overextend, but don't sit doing nothing either.....