Warning to Landlords - perseverance and patience pay in uncertain times

Uncertainty has become a vastly overused word to describe our economic situation in recent years. But, once again, it’s an unwaveringly appropriate word to describe the times we find ourselves in right now. 

While market turbulence and financial downturns are nothing new, the domino effect of Brexit, the pandemic, geo-political turmoil, fast-rising inflation and now monumental u-turns on contentious fiscal policy making are creating a uniquely unpredictable set of market conditions. 

As a platform serving thousands of UK and internationally-based landlords, GetGround is continually discussing these uncertain times from a property investment perspective. Stopping short of giving advice, we believe it pays for landlords to look at the fundamental strengths of this asset class before making a call on the future of their portfolios. 

Uncertainty, as a rule, finds few friends among investors. For one thing, it makes decision-making all the more difficult. When markets feel uncertain, many investors choose to hold fire on further decision-making, often retreating to holding cash while they wait for the storm to pass. 

However, no two market crises are ever the same and the appropriateness of one safe haven during one diminishes in another. Just like the 2008 credit crunch, or the Covid-induced downturn of 2020, current market turbulence is unique in its very own way. It is burdened with an extraordinary inflationary environment that turns on its head the usefulness of cash. 

At 9.9 per cent, UK inflation is the highest it’s been for 40 years, and it hasn’t stopped rising yet. This puts a lot of pressure on holding cash savings. A savings pot of £10,000 is losing £1,000 a year in value. With inflation unlikely to dip below 5.0 per cent until 2024, cash can’t be considered the same safe haven it’s often been before.

When something as seemingly stable and resilient as cash in your hand starts to feel unreliable, investors invariably ask more questions and worry more about the decisions they need to make. 

Just as for investors in stocks, bonds and crypto, for property investors right now, the rumour mill is rife with ideas and worries. Will values fall, will sales collapse, will lenders keep lending and tenants keep up their rent? 

Nerves are understandable. Which of us after all relishes instability or the unknown? 

But, at times like these, it pays to be patient and resolute, staying confident in some core, established fundamental certainties about property, that time and again prove this sector’s resilience in high pressure markets - particularly in comparison with other asset classes available to mainstream investors. 

While, in the 12 months to July 2022,  the FTSE 250 fell 12 per cent, Bitcoin 33 per cent and gilts 15 per cent, property outperformed, with UK house prices increasing 15.5 per cent over the same period. 

To the uninitiated, these stats might look too good to be sustainable. But the core fundamentals of the asset class are underpinned by two real constants of the market in which we’re operating. 

First: the supply and demand disconnect of homes throughout the country. The dynamic between these two forces consistently creates opportunity for property investors in the UK. Government sources tell us we need 340,000 new homes every year. Last year only 216,000 new homes were built, leaving an enormous 36 per cent deficit. It has been a similar story for more than a decade now, creating an accumulated shortfall that is startlingly significant. In recessions, the developer market can get hit hard, meaning fewer new homes are built, compounding the issue yet further. We continue to be a long way off supplying as many new homes to those that need them, meaning the need for investors and their rental property is reaching record highs.

Second, demographic changes across the UK are increasing tenant demand. As the make-up of our population continually changes, we see growth among the groups of people that are proven to be more likely to rent; for instance, younger adults entering the workforce or immigrants (who, incidentally, will alone account for 100 per cent of net population growth by 2035). From financial affordability to lifestyle flexibility, the reasons why these individuals seek rentals over home ownership vary, but the impact of their rental demand is notable. Earlier this year, research by BVA BDRC proved tenant demand is at its highest on record with three in five landlords citing more demand for their rental properties. 

2023 will mark the somewhat dubious half-centenary of the start of the last major UK inflationary recession. Most of us have little or no memory of working let alone of owning investment property at that time. But, look back at how property has performed in those fifty years since and we might just conclude that sitting tight, staying patient, and letting our properties ride out the storm ahead is the best decision we can make right now. Good value investment and market-beating risk-adjusted returns aren’t earnt in a day. In property, patience and perseverance pay, time and time again. 

* Moubin Faizullah Khan is founder and chief executive of GetGround *

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