What is the new normal?

This time of year is traditionally one where us property folk look to make plans and set targets of what we want to achieve with our property business in the coming year.

I suspect this year will be different. Many of us have found this year to be very difficult due to the Covid 19 pandemic and it is likely that 2021 will bring some continuing challenges.

I have always thought when setting goals, it is useful to reflect on what has been achieved, the successes enjoyed and to set goals which are achievable and measureable. This may be difficult with the current economic and public health backdrop and so I would suggest you spend a little more time on it this year.

Indeed it may be the case that the pandemic has made you shift your focus. Your goal for 2021 may be to focus on improving a work/life balance or to quicken plans you had for retirement or for a house move out of a big city. Regardless of what your aims are, you are more likely to achieve them with some forward planning.

Whilst I possibly cannot assist you with your work/life balance, I can hopefully provide you with some tips of how to try and navigate what 2021 may have in store.

For me, I think it is important that landlords and investors have a reasonable cash sum to allow them to deal with unplanned maintenance, loss of rent, increased voids or other issues which may be faced. In the current climate I understand many landlords have higher tenant arrears levels and a number of my Clients who have HMO accommodation are reporting a fall in demand and longer void periods. A cash buffer will allow you to better deal with some of these issues. This is particularly important as the Court system is unlikely to process a tenant eviction for some months and so your skills of managing your tenants are what you need to rely on, at least in the short term.

For those who focus on development I would keep a close eye on the economic indicators in respect of unemployment and market sentiment and ensure that you do not get caught with a highly geared development that you cannot profitably sell. The need for a plan B of rental or serviced accommodation must be a worthy due diligence consideration in these uncertain times.

For those adopting the buy and hold approach, I would also suggest that you exercise caution over your Loan to Value percentages. It is certainly possible that the market will experience some sort of correction if unemployment rises quickly and particularly if such an event coincided with the removal of the current stamp duty suspension. Whilst many lenders are offering 75% LTV presently, I would suggest this may be a little high  if you wish to be insulated from any unwanted attention from your lender in the event that prices soften in 2021. Now could be a perfect time to see a financial advisor and review your current strategy.

My principal concern going into 2021 is the possible write down in values which could occur principally in the commercial property sector. Many landlords in the hospitality, office and retail sectors are seeing tenants leaving or re-negotiating rents. This will have an adverse impact on capital values and if there are a number of sizeable insolvencies of this nature then the economic issue could potentially turn into a banking issue. This is an important consideration as a property market correction would be exacerbated if the banks restricted lending.

Those of you invested in such sectors may want to consider reducing your exposure or seek to add some diversification to your portfolio. Maybe you could consider seeking specialist planning advice to understand whether your buildings could have their value protected if you were to secure a change of use.

That said, I also think that there could be some opportunities for people in 2021. An increase in business insolvencies and redundancies could see you being able to more easily recruit good quality staff for your business and could even present an opportunity for a merger or acquisition with a similar business if the economic situation means this could be advantageous. 

Challenging times often require a back to basics policy namely the strict control of costs, the thorough analysis of risk and maximizing of your assets. Do this consistently and you are most likely to weather what may lie ahead.

I wish you all well with your property businesses through these challenging times. The hard working, creative and persistent will doubtless thrive.

In the meantime I wish you well for the holiday season and you have my best wishes for a happy and healthy 2021.