Property Investment in 2021 - Solomon Investment Partners
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Property
Investment
in 2021
Many people will be glad to be
leaving 2020 behind them – a
year associated with Covid-19, Contents
lockdowns, business closures
and uncertainty. It was also a year
03 — 05
2020: A Property Market Review
that confounded many experts’
predictions. As we begin a new year, 06 — 07
now might therefore be a good time Lessons Learned
to consider what lessons there were
to learn, and what they might mean 08 — 09
for property investment in 2021. Changing Needs and Priorities
Towards the end of this article,
10 — 12
Income and Savings
we’ll also take a look at the
recent performance of secondary 13 — 14
investment markets. We have often Public Policy
advised our clients that it isn’t always
the best-known cities that deliver the 15 —16
most rewarding results, and events The Stamp Duty Holiday
over this last year have proved that
beyond all doubt.
17 — 19
House Price Forecasts
Those who took advantage of our 20 — 21
carefully researched investment Longer Term Prospects
opportunities over the last twelve
months will have enjoyed truly 22 — 23
excellent returns. Regional Patterns
To judge for yourself how our ‘top 24 — 26
Secondary and Tertiary Markets
picks’ fared, please see our section
on secondary and tertiary markets. 27 — 28
In 2020, as in previous years, Summary
we identified some exceptional
performers.
02 © Solomon Investment Partners 2021
03 2020: A Property Market Review
At the start of 2020, numerous As soon as the lockdown eased and
estate agents and lenders seemed property viewings were again made
confident that the year would possible, market activity resumed.
perform reasonably enough, the only Not only that, but the demand that
big unknown being the uncertainty had been gathering during lockdown
associated with Brexit at the end of produced a marked surge in interest,
the year. There was some variation and this kickstarted a wholly
in the predictions but, generally, the unexpected price boom.
expectation was that demand would
stay strong and average values
would continue to rise at a modest rate.
Here’s what some of the leading
commentators said:
Of course, then Covid-19 struck, and
all bets were off. Between March
and June, various sources revised At this point, with market behaviour
their figures downward, with some running contrary to conventional
predicting substantial falls. economic theory, few commentators
seemed willing to publish another
set of predictions. Many remarked
that the trend was surprising, but
few committed to giving any actual
figures. One that did was Savills,
which published its revised 5-year
Mainstream Residential Market
Forecast in September 2020.
The logic behind these predictions
is easy enough to understand but,
in the event, the robustness of the
housing market surprised everyone.
04 © Solomon Investment Partners 2021
Here, the change was very apparent.
Buy to let investment opportunity in
Bootle, Merseyside↗ Recognising the startling strength of
the residential market, the company
revised its overall projection from an
average of -7.5% to +4% (a swing of
+11.5%).
Ultimately, this figure proved to be
fairly accurate. Different sources
offer different house price data, but
all agree that 2020 delivered strong
capital gains.
Like many others, Robert Gardner,
Nationwide’s chief economist,
had regarded the resilience of the
property market as ‘unlikely’ at the
start of the Covid outbreak. However,
he notes that “since then, housing
demand has been buoyed by a raft
of policy measures and changing
preferences in the wake of the
pandemic.”
05 © Solomon Investment Partners 2021
06 Lessons Learned
Those last points are worthy power should have fallen, and this
of further examination. Many should have had a negative knock-
journalists have written about the on effect on both rental values and
market’s astonishing resilience but house prices. Logic would normally
Gardner at least points towards a dictate that if people are feeling
couple of important explanations for it. materially poorer, they should not be
considering moving to bigger, better-
While the market was locked down, situated and more expensive homes.
demand for housing continued to
build. This ran contrary to some However, that is exactly what
expectations because, at a time happened, and the earlier allusion to
when many people were losing some ‘changing preferences’ might indicate
or all of their incomes, spending one of the principal reasons why.
Buy to let investment opportunity in
Bolton town centre↗
07 © Solomon Investment Partners 2021
08 Changing Needs and Priorities
During lockdown, a number of
unusual things happened. First
and most obviously, people spent
a lot more time at home. Some
were furloughed and, for months,
had little to do but take occasional
exercise, shop, and sit around at
home. Others began to work from
home for the first time. Both sets
of circumstances led many people
to become more conscious of the
space they had, both indoors and out.
Since the start of the boom, many
estate agents have reported a surge
in interest in buying or renting homes
that offer more space. Many have
wanted a quiet, dedicated area for
home-working – rather than being
forced to work from the kitchen table
or the corner of a bedroom. Others
have wanted a home with more room
in the garden, or at least a balcony For another group of people, an
and access to local countryside or enforced period at home put pressure
parks. Some have called it ‘the race on strained relationships, and as
for space.’ partnerships broke down, more
individuals and single parents began
to hunt for new places to live.
All of these forces tended to pile
on demand for housing, which had
already been in short supply, long
before the term ‘Covid’ had ever
entered the language. Thus, when
the lockdown eased, the market saw
a new surge in keen potential buyers.
09 © Solomon Investment Partners 2021
10 Income and Savings
Another possible reason was to save more. In November 2020,
a shifting pattern of consumer the Bank of England reported that
spending and average disposable “household savings have risen
incomes. On the one hand, millions substantially since the start of the
of people were earning only 80% Covid-19 pandemic.”
of their usual salaries on furlough;
others lost their jobs altogether The BoE also noted that “28% of
as hospitality and service- those surveyed had accumulated
sector businesses went under. In additional savings as a result of the
absolute terms, average incomes pandemic, … (and) the accumulation
undoubtedly fell. of savings was greatest for high-
income households. 42% of high-
However, many people found that by income employed households saved
being stuck at home, with no reason more during the pandemic, compared
to incur expenses on fuel, rail and with 22% of low-income employed
bus fares, new work clothing and households.”
evenings out, they were starting
Buy to let investment opportunity in
Doncaster town centre↗
11 © Solomon Investment Partners 2021This is evident in the following chart, which was published by the Bank of
England in an article entitled “How has Covid affected household savings?”
Source: Bank of England November 2020
Thus, many people actually saw Moreover, the fact that more
their bank balances improving during affluent people tended to save
the pandemic, which might have more might help to explain another
been a factor in their willingness to notable pattern in house price data.
commit to new house purchases or According to several sources, the
to move into better quality rental biggest gains tended to be made
accommodation. by detached and semi-detached
properties, rather than the sorts of
home sought by first-time buyers.
12 © Solomon Investment Partners 202113 Public Policy
Earlier, we noted that Nationwide’s Thus far, the furlough scheme has
chief economist, Robert Gardner been extended as required, and
had suggested that, amongst other similar support has been provided for
things, “housing demand has been some categories of self-employed
buoyed by a raft of policy measures.” people. The future of these schemes
may be in question but with Covid
One of the most widely-publicised vaccines now being rolled out, there
of these measures was the furlough are grounds to believe that they may
scheme, which undoubtedly helped not be necessary for much longer.
to safeguard millions of people’s
incomes – and arguably many However, looking ahead, many
jobs – at a time when the economy economists are concerned that the
might otherwise have nosedived. By UK has not yet reached the peak of
enabling tenants and homeowners unemployment. They argue that more
to keep paying their bills, the job losses will occur in the first half
Chancellor Rishi Sunak helped to of this year and, consequently, this
insulate countless families against could cause house prices to stall. (We
an unprecedented crisis. In so will look at house price predictions
doing, he will also have prevented for 2021 later on.)
many mortgage foreclosures, house
repossessions and the eviction of
non-paying tenants.
14 © Solomon Investment Partners 202115 The Stamp Duty Holiday
Another key policy measure was surveyors and conveyancers have
the introduction of the Stamp Duty struggled to keep up, and severe
holiday in the summer of 2020. bottlenecks have developed.
This agreement – to suspend the
duty on the sales of homes valued Property professionals have warned
at less than £500,000 – is widely of the mounting risks to all parties,
acknowledged to be one of the and the possibility that up to a third
main drivers of the recent house of prospective buyers may pull out
price boom. However, the holiday of their deals if the holiday is not
is scheduled to end on 31st March extended. In December, the UK
2021, and industry commentators Government stated that it would not
are increasingly warning that the extend it but, significantly, it has set
market is approaching a ‘cliff edge.’ the date of the next budget to occur
shortly before the 31st March, so it
A key concern is that the full amount has left itself time to make a U-turn.
of tax will be payable on transactions
that fail to complete before the end If Stamp Duty is reintroduced in
date of the holiday. This has given full on 1st April, there are risks that
rise to a surge in demand from buyers housing demand could abruptly
who are anxious to complete before contract, and that – in turn – could
the end of March. As a result, many prompt a freeze on price growth.
Buy to let investment opportunity within
easy reach of Leeds↗
16 © Solomon Investment Partners 202117 House Price Forecasts
Like 2020, this coming year is likely house price boom, his decision
to be unpredictable. Forecasters to reintroduce the tax could very
have to account for contradictory possibly end it.
forces. On the one hand, the new
lockdown, which came into effect On the other hand, two important
on 5th January, will almost certainly factors will be working to push prices
slow the property market down. upward. One is the fact that the UK
Viewings and valuations will be now has effective vaccines against
harder to carry out, and a rising Covid. By the spring, millions should
rate of infections could see more be protected against the disease
solicitors and surveyors hampered and, with any luck, the country
by absent staff and requirements might begin to return to more normal
to isolate. When the same thing conditions. Freedom from the threat
happened in spring 2020, prices and of the coronavirus should eventually
transaction rates both faltered. see the UK and world economies
entering a phase of recovery. As
Another braking force could be the more people return to work and earn
resumption of Stamp Duty. Just as regular incomes, so we should see
the Chancellor’s decision to suspend new energy in the property market.
it was credited with starting the
18 © Solomon Investment Partners 2021With these and other considerations In a BBC article, Robert Gardner
in mind, several lenders, estate asserts that the outlook remains
agents and other industry bodies highly uncertain and that “Much will
have set out new predictions for depend on how the pandemic and
house prices in the year ahead. the measures to contain it evolve,
Generally, it seems that they are as well as the efficacy of policy
erring on the side of caution, most measures implemented to limit the
of them concluding that the various damage to the wider economy.”
factors will, to some extent, cancel
one another out over the course of One of the most pessimistic
the year. predictions comes from the
Government’s own Office for Budget
Buy to let investment opportunity in Responsibility, which in November
Doncaster town centre↗
2020, forecast an 8% downturn in
prices. It remains to be seen whether
it intends to revise its figures in light
of the vaccination programmes and
the Brexit agreement.
One of the more optimistic is
Rightmove, which predicts gains
of 4.0%, based on the continuing
strength of demand for housing
and the continuing under-supply of
residential property in general.
19 © Solomon Investment Partners 202120 Longer Term Prospects
The forecasts clearly vary, but
Buy to let investment opportunity in
investors may be gladdened to Wolverhampton city centre↗
see that most commentators seem
to be in agreement that average
values will pick up again in 2022
and beyond. For serious investors
who regard property as a long-term
venture, these are the indicators
that matter most.
• Savills projects steady growth
after next year. Across the UK as
a whole, it expects prices to rise
by 4.0% in 2022, by 6.5% in 2023,
and by 4.5% in 2024.
• Hamptons predicts gains of 2.5%
in 2022, and 3.5% the following
year.
• PwC expects that prices will rise
by an average of 4% per annum
between 2022 and 2025.
• Knight Frank is forecasting gains
of 3% in 2022, 4% in 2023, and 3%
in 2024.
Given that the current rate of inflation
is currently running at less than half
of one percent (i.e. 0.3% as at 6th
January), any such returns should
see investors making significant
real-terms gains; gains that would
certainly outperform any high street
savings accounts or bonds.
Moreover, with rental demand set
to stay very strong in 2021 and
the prospect of a vaccine-driven
economic recovery in the second
half of the year, investors can also
be confident of seeing a good,
dependable rental income.
21 © Solomon Investment Partners 202122 Regional Patterns
The forecasts listed above are only broad national figures, so they are of limited use. More helpful, perhaps, are predictions on a region-by-region basis. They don’t offer any sights into the best specific investment destinations, but they can at least help investors to narrow their searches. With this in mind, it’s interesting to see some level of agreement that the more affordably priced markets are regarded as the ones with the best potential for capital gains. Savills’ top five destinations are as follows: Hamptons’ forecast favours the following regions, again putting an emphasis on more affordable markets. Its top five are: 23 © Solomon Investment Partners 2021
24 Secondary and Tertiary Markets
In both 2019 and 2020, we made • Leeds came in second overall,
the case for investing in secondary gaining 11.3% year-on-year
and tertiary property markets; those • Wolverhampton came in fourth,
lesser-known British towns and with gains of 9.5%
cities that had not yet caught the • Doncaster came in sixth, achieving
attention of mainstream professional gains of 8.8%
investors. • Bolton also made the top 15, with
gains of 7.1%
Looking back, it’s clear that our • Newcastle-upon-Tyne came in at
advice was sound; these have 18, with gains of 6.6%
been some of the country’s most
rewarding and resilient markets. Buy to let investment opportunity in
Preston city centre↗
Last year, we highlighted new
opportunities in Bolton, Doncaster
and Wolverhampton, and our latest
developments are in Newcastle,
Leeds and Liverpool. All these
areas have outperformed national
averages. The following figures from
Zoopla show how they compared in
the year to December 2020.
These patterns appear again in a
December 29th article featured
in This Is Money, which uses data
from Halifax, one of Britain’s biggest
lenders. It published a list of top 20
high-performing towns and cities
for capital appreciation, and it’s
interesting to note how well our own
‘best picks’ performed.
25 © Solomon Investment Partners 2021Of course, capital growth isn’t
Buy to let investment opportunity in
Runcorn town centre↗ the only important measure of
investment success. If we look at the
average rental yield figures given by
LendInvest at the start of January
2021, we can see the following
regional results:
Again, it’s clear that the more
affordable regions have tended to
deliver better results.
However, while some of these figures
are impressive, none compare
with the returns that our own
featured investment opportunities
have delivered. Our assured rental
agreements have delivered gross
returns starting at 8.0% for 10 years,
and they have all come with the
opportunity to review on a two-yearly
basis so that investors can benefit
from any increase in capital value.
26 © Solomon Investment Partners 202127 Summary
2021 promises to be an
unpredictable year, characterised
by conflicting price pressures and Buy-to-let
economic change. The next twelve investment
months may see only modest growth
opportunities
or perhaps even a slight contraction,
but any such result could be seen as
Currently, we have carefully
an opportunity to buy before prices researched buy-to-let investment
begin to accelerate again in 2022 opportunities in all the following
and beyond. locations:
01 Bolton town centre 150 units
After 2021, most expectations are 02 Bootle, Merseyside 60 units
that the economy will be in recovery, 03 Doncaster town centre 70 units
Covid will be a dwindling force, and 04 Doncaster town centre 78 units
Brexit uncertainty will be a thing 05 Leeds (surrounds) 66 units
06 Newcastle city centre 180 units
of the past. Against this decidedly
07 Preston city centre 70 units
healthier background, property
08 Redditch, West Midlands 98 units
should gain steadily in value, and
09 Runcorn town centre 113 units
remain one of the UK’s most reliable
10 Wolverhampton city centre 144 units
and rewarding asset classes.
Coming soon:
More immediately, forecasts of more
01 Stoke on Trent 220 units
modest growth this year create a 02 Scarborough 55 units
window of opportunity; a chance to 03 Sheffield 61 units
secure new properties with excellent 04 Doncaster 34 units
potential, and all located in some 05 Newbury 190 units
of the country’s most rewarding 06 Bolton 330 units
secondary investment markets.
If you’d like any advice or information
to help you plan a new property
investment, please call one of our
advisers on 0343 330 9990.
28 © Solomon Investment Partners 2021Solomon Investment Partners Second Floor, Knights Court, Weaver Street Chester, CH1 2BQ United Kingdom Telephone: 0343 330 9990 Email: info@solomonip.co.uk www.solomoninvestmentpartners.co.uk © Solomon Investment Partners Limited 2021
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