The property market will crash (I think)

We have been trying to buy a flat for months and many months ago (August 2019) agreed on the purchase with the seller. It’s taken a long time to sort out some legal paperwork on the seller’s (the estate agent loves the word “vendor”) side of things. A few weeks ago, we got word from our solicitor that he has now finally received all the paperwork he needs to continue with the purchase.

However, Covid-19 happened and he asked us if we were still planning on to continue with it. At first, we thought that this is fantastic news and we should buy the place. After some thought, we got more cautious as the UK economy is headed into a massive recession, no-deal Brexit is more real than ever before and my employment isn’t that secure.

Yes, we’re lucky that both of us can continue to work from home but I can see business drying up in the coming months (although summer is always a bit slow). My girlfriend doesn’t worry as her job (in mobile gaming) is going well and her employer is making record sales as more people are at home and have time on their hands.

We decided that we should renegotiate the price on the flat and offered to buy the flat at a 5% lower price. The estate agent replied a week later and declined our offer as property only goes up in value (paraphrased and read between the lines a little). This was disappointing news and we decided to pull out.

Luckily it’s only £250, which we lost out on, which were some legal fees we incurred early on in the process.

I’m a bit of a crashist when it comes to the property market. We have 7.5 million people on furlough as of 10th May 2020. Most of them are earning less now (80% of salary up to £2,500 gross p.m. where the employer could voluntarily top-up to 100% of salary), which means there’s less demand to buy properties. Similarly, I predict, quite many of today’s furloughed staff will have no job to go back to in a couple of months’ time.

Unemployment is at 4% as at Feb 2020 but this is expected to double once we have the numbers available. This is not good for property prices.

Millions of people have requested mortgage holidays. A lot of people here are already unable to pay their mortgage, what’s going to happen in a few months’ time when the furlough ends? There will be defaults and people will lose their homes.

The estate agents such as Knight Frank and Savills etc have come out with predictions of 3% or 5% falls for the year, which will rebound in 2021 – what a joke. They have a vested interest in saying that things are all good and we should all be buying property left, right and centre. The fall in property prices will be significantly more than just single digits. This crisis is going to be huge as big parts of the economy are shut down.

How do you imagine the airlines go back to normal? The tube with wings where everybody breathes the same air is impossible to make safe for travellers. How do you do social distancing on a plane without big increases to ticket prices? I like many would be unable to fly to, say Spain, for a holiday if a condition of entry to the country was for me to self-isolate for 2 weeks on arrival. The travel industry will be in a new world of pain.

London has many AirBnb’s as well. Guess what, they’re empty because nobody can travel. That’s not going to change for a while. I expect these chaps will flood the market with either long-term rental properties or try to sell and get out of this business. We shall see. This is good news for lower rents and lower property prices.

What about a vaccine? Well, mostly the fact that it doesn’t exist. Even if it did, it would take many months to produce it and distribute it all over the world for everyone to feel safe again. I’m not saying they won’t find a vaccine or develop a cure, I’m saying it will take time, during which the economy will suffer.

OK, back to property prices. Some of the highest earners are in the tech sector – programmers and what not. They can work from home and many (e.g. Twitter) companies have already said they are happy for all their staff to continue working from home even after the plague. This has increased demand for homes outside of cities. Why would somebody on a six-figure salary pay £3,000 on rent in a Central London flat, if they could own a nice home outside the city? I expect a lot of high-earners to relocate further outside big cities where their money buys more happiness. This will drive prices down in big cities but increase them in smaller towns.

My friend asked me how long do I want to defer buying and paying rent for nothing. If I buy now, I’d still be building equity and have an asset. The problem here is that I’m not looking to buy a forever home. I’m not sure I will be in London long term. Therefore, buying now and selling within a couple of years may be very expensive if property prices crash. I could, of course, rent the property to tenants when I move elsewhere but that’s not something I want to do – I don’t have an overwhelming desire to be a landlord and deal with fixing boilers, washing machines and water leaks. It would also be difficult to re-mortgage a few years down the road if I was in negative equity and there’s a risk I’d end up paying more in interest.

Why take all the above risks? The only way I’d take these risks is if the upside was proportional to them. I’d be happy to buy if I got a price 20%+ cheaper than the prices in the pre-Covid-19 world i.e. in Feb 2020. I think it’s a bad idea to go ahead with a property deal agreed in the pre-Covid-19 world now that we are in the post-Covid-19 world. You should only consider doing that if you are buying something for the long term.

My plan is now to sit tight and adopt a wait-and-see approach. We also decided to move to a cheaper rental flat as living so centrally doesn’t have the benefits it used to have (everything is closed – cafes, restaurants etc, walking distance to work isn’t that attractive as we work from home). We are paying too much for the luxury of living in Central London in Lockdown London.

My employer has also said that they will take a much more cautious approach to get back to normal compared to any Government guidance as a big part of our clients are elderly and more likely to suffer health problems from Covid-19 infections. My girlfriend was told that they expect most of staff in her company to work from home until at least September 2020.

Taking all of the above into account, I think we have made the right decision by not buying the flat. I will keep you updated once this changes. In the meantime, we will continue to squirrel away money for an even bigger deposit.

Take care!

Pandemic benefits

I had a think about whether there was anything positive about this pandemic and I actually came up with a few things. These don’t have a lot to do with finances though.

Pollution. There’s a lot less of it. There are hardly any cars in Central London and I think the air quality here is the best it’s been since I moved here. This is true for most areas in the world now.

Peace and quiet. I live above a pub… or to be more precise the pub is on the ground floor in the building, which is diagonal to where I live. This pub gets crowded and there’s almost always an overflow to the little square outside of it. The chaps at the pub tend to get loud, especially when they’re watching football or something. There were plenty of Covid-19 parties down there until they closed the pubs in the London lockdown. Now it’s super quiet and peaceful at home. I really like it.

More quality time with my girlfriend. I get to spend all day with my lovely girlfriend as both of us are working from home. It’s very nice! Yes, there’s the usual bickering where both of us are in a phone conference and someone is too loud and other stuff… but overall it’s a positive experience.

Saving money (and investing). We’re not going out, no restaurants, no brunches, no nothing. This pandemic thing is a great opportunity to save money… but as everybody is doing that the economy will suffer. Markets have corrected quite a lot and seem to present a good opportunity to add more to my portfolio at low prices.

It’s not all bad. See ya!

Covid-19 pandemic handouts

The UK government is taking unprecedented measures to tackle the economic impact of this pandemic. This includes both corporate and individual welfare.

I already ranted about corporate welfare in my last post. Now it’s time to hate on the government some more.

I’m not exactly in favour of handouts. Full stop. It doesn’t matter whether these are to a business or to individuals who have made poor decisions. Both people and businesses should take responsibility for their actions or lack thereof.

In my opinion, giving out handouts increases reliance on the government and reduces a society’s capacity to look after itself. Big business has learned that they can continue to take big risks because the government will be there if the shit hits the fan. Same for the little guy, who feels he will always be taken care of by Mr Government – from cradle to grave. Nobody needs to work on improving themselves, inventing new services/goods etc – what’s the point? You will be OK. Right?

It’s a slippery slope. Many handout programs also make it difficult to get off handouts as your income would then reduce, rather than go up. Why go to work for £1,000 p.m. net if you get to lazy around at home and collect £600 without any travel or work expenses? (full disclosure I don’t know what the actual numbers for benefits are, but the point remains valid)

Having said that, I feel that bailing out the little guy seems more palatable to me. Companies with big pockets should be able to plan for contingencies, but the average Joe is clearly more vulnerable and may not have the resources or capacity to even consider this. This is a societal failure. This is a government failure.

We should all be taught to save for a rainy day, invest wisely – not just in the stock market, but in yourself – your education and your skills. Basic financial education needs to be a core part of the curriculum.

Almost 10 million UK households had no savings whatsoever in 2017. Wow! What a sad state of affairs! Even the smallest emergency would cause massive hardship for these guys. It’s so easy to end up in debt and before you know it you’re bankrupt. As a wealthy nation, the UK should do better.

The government is now paying salaries for people who can’t work due to Covid-19. This is 80% of salaries up to £2,500 per month with loads of terms and conditions, which are complicated to understand. This is another failure of the government – they look like the good guy trying to help out their people. But they make it difficult to navigate the benefits system (probably on purpose) so that fewer people apply for it. It’s quite genius when you think about it – politicians and bureaucrats will later say they helped everybody get back on their feet when trying to get re-elected. Never mind they made it difficult to access these benefits.

It is what it is. I hope things improve and that people learn from this crisis. Stay safe!

Private profits and socialised losses

The global stock markets look pretty bad with Covid-19 doing its thing. My portfolio has taken a massive hit and I must admit it feels very uncomfortable to have losses greater than my annual before-tax income.

There’s loads of news about industries begging for bailouts from their governments. It’s outrageous that for-profit companies could get bailed out by the taxpayer. These crappy companies should all go bust and make room for people who can manage their business in a more prudent way.

I was against the bank bailouts in the financial crisis in 2008 and am against it again. Let them fall. Let them falter away. Every business knows that it can go bust if it doesn’t manage itself properly. We should encourage the failure of crappy companies to build an overall stronger economy. This is how things should be. The bad apples should get tossed into the rubbish where they belong.

There was an article which said that the majority of airlines will go bust within months if they don’t get bailed out. Let them!

Instead of saving for a rainy day many companies opted to buy back their own shares on the stock market. Actions have consequences. Let them fail!

Why should some bureaucrat get to decide which company or industry gets to survive whilst everybody else suffers? The entire bailouts thing reeks of corruption. Industry officials bribe lobby some politician and voila, free money from the taxpayer granted. It’s disgusting. Let them fall.

But the economy will turn to shit if you don’t bail them out“, you might say. Bollocks! The economy will always find a way to recover. New businesses and industries will emerge as they always have and things will improve. They will restructure, learn from their mistakes and build better businesses. Have a bit of faith in humanity.

COVID-19 concerns

My two week holiday in Thailand has now come to an end. I am so relieved. It is amazing to be back in London and in a “proper” country.

The COVID-19 situation was a massive bummer during the entire trip. I developed a small-scale paranoia over each cough or sneeze I heard. I was on the edge all of the time. I’d hold my breath every time I passed someone who coughed or sneezed or spoke Chinese (I know, I know… it’s actually Mandarin – but you get what I mean). This was relatively stressful.

It didn’t help that the news was all about the virus doing its thing all day long. I even got an email from HR, which said that they may require me to stay at home for 2 weeks upon my return as a precautionary measure even if I am asymptomatic. This worried me a lot as it would also impact my girlfriend, who would also need to self-quarantine – otherwise what’s the point if one of us is at home potentially spreading the infection and the other one continues with her life as usual potentially sharing the love.

I was allowed to go to work by HR as I was asymptomatic and deemed a low risk for COVID-19. However, at times it’s relatively unpleasant to be back. My colleagues, naturally, worry about whether it is safe to be around me or to converse with me or if it is OK to sit next to me. It makes me feel unwanted and uncomfortable.

The entire 14-day self-quarantine thing might all be insufficient anyway as there have been cases where people were asymptomatic for much longer. Also, if I catch a normal cold (as there are people coughing their lungs out in my office every 2 minutes – it’s a big office) I’d have to self-quarantine anyway. I am on edge as I need to stay healthy for 14 days… otherwise, I and my girlfriend will be locked up and need to contact NHS and do whatever they ask us to do. This is all very frustrating.

The other big development is the sell-down in global stock markets. My relatively large gains for February 2020 have been completely wiped out and this month might end in red. Sad. I was looking forward to registering one of my best investment performance months.

I’m not going to make any changes to my portfolio because of the COVID-19 volatility. This is because my investment strategy never had a rule which said “if we have a coronavirus outbreak in South-East Asia, then sell to cash an move to bonds” or anything like that.

The way I see it, the virus situation is a temporary event and largely noise. I will ride it out and stick to my long-term investment strategy. In fact, right now could be a good time to add more money into the portfolio.

Enjoy the ride!