With a global recession looming, how will the rental housing market fare?
There are early signs that buyers and sellers are pulling out of viewings in the residential housing market. Although it is premature to judge the validity of such anecdotal information, the situation has the potential to snowball.
The BofE’s move to stimulate the economy lowering the base rate, should, under ordinary circumstances, also create a rise in demand for houses. But two important factors come into play: Will banks pass on the lower interest rate and even if they do, will sellers be happy to take lower valuations due to the recession?
In the past the outcome has been less liquidity in the market as homeowners decline to take the lower prices. At the luxury end of the housing market things look even worse as it is likely to be hit with a sharp fall, as prospective international buyers, particularly Chinese buyers, will decline to buy and may indeed be encouraged to sell. In light of a looming global recession due to the impact of COVID-19, international buyers are likely to dry-up and the ongoing travel restrictions are only going to fuel this trend further.
In our view, the interesting beneficiary could be the rental market. If current events create a lack of liquidity in the low-and-medium priced residential housing market it will become even more difficult for first time buyers. Large institutional investors, such as Grainger Plc, already recognise this group and their dwindling hopes of becoming property owners. Institutions are investing heavily in the Private Rented Sector (PRS) market for housing, which addresses first time buyers with high quality apartments and long-term rentals. The current crisis could well drive up demand from renters for PRS developments, accelerate investor returns and increase their levels of investment.