We’re all worried about the impact the virus may have on our lives, and if you’re in the older group its a particular worry. Holidays and trips booked, events planed, forward commitments all put on hold.
If you run a business it’s a double whammy: cash-flow and profits may well be adversely affected, but if you are unlucky enough to live in a flood affected area, you could even be unfortunate enough to suffer a triple whammy, what a ghastly year it’s been up to now.
Like other businesses, landlords are vulnerable to having their cash-flows disrupted when tenants are self-isolating or sick with the virus, some unable to pay rent. We can only hope the government comes in quickly to the rescue, as promised.
Richard Murphy, a chartered accountant who campaigns on issues of tax avoidance and tax evasion, is calling in his Blog for landlords to declare a rent amnesty for tenants who suffer with the coronavirus.
An adviser to the Trades Union Congress on economics and taxation, and Professor of Practice in International Political Economy at City University London, Mr Murphy says:
“There is simply too little economic resilience within the population as a whole… Far too many people have too few savings to survive major periods of economic inactivity without massive prejudice to their short-term and long-term well-being”
I think Mr Murphy is perhaps falling into the common trap by assuming that all private landlords are right next to the landowning aristocracy: rolling in cash and able to sustain themselves as well as their tenants in this time of crisis.
Many landlords may well be wealthy enough to provide that kind of support, but I suspect there’s a big proportion of private landlords today who are working folks themselves, dependant on regular rent payments to pay their mortgages.
But, in any event, landlords may be called upon to re-schedule rent payments if tenants fall into hardship and can’t pay, and therefore all landlords should plan accordingly, sooner rather than later, to speak to their mortgage providers and if necessary their banks.
How landlords and agents are likely to be affected has yet to be seen, but we can speculate. For a start, moving may be be delayed or put on hold for some time, likely to affect agents more than landlords.
The stock markets are anticipating an adverse effect on real estate generally, with property investment trusts under performing the market during the market sell-off. The sector fell by 11.3% last week, compared with 11.1% for equities in general, that’s according to Numis Securities.
Within those figures though some players fared even worse: student lettings company, Unite Group, Britain’s largest provider of student housing fell by 15%, and that’s despite them just reporting a strong set of annual results. Why?, because of investor’s worries about the potential impact of the coronavirus.
Unite has 74,000 beds in 27 cities and its portfolio is valued at around £5.2 billion. Its shares price is up 22.7% in 12 months following its £1.4 billion acquisition of Liberty Living, its main rival.
Like-for-like rental growth in 2019 was up 3.4% on the year, better than the previous year’s 3.2%. But now the coronavirus outbreak threatens – Chinese students are thought to make up around 13% of Unite’s tenants, though 50 per cent may be UK based.
Despite the threat, the company expects growth of between 3 and 3.5% for next year, thanks to a combination of price increases and prudent asset management. They expect the impact of covid-19 on student numbers to be offset by the new government’s supportive policies for attracting overseas students, and a boost in Britain’s 18-year-old population.
Student housing is likely to continue to be a growth area as evidenced by a record-breaking deal by the world leading property fund manager Blackstone. They agreed to buy the iQ student housing company from Goldman Sachs and Wellcome Trust for £4.7 billion in what will be the biggest UK private property deal on record when complete.
On the other hand, things don’t seem so rosy in the retail sector. Shares in the shopping centre owner Intu Group have fallen sharply after the indebted owner of Lakeside Essex and the Trafford shopping centres had said it would push ahead with a cash call on its investors, thought to be in the region of £1bn.
Intu has been hit by weak demand for its high street retailers, with struggling groups including Arcadia and Debenhams occupying a lot of space in its centres, and the coronavirus is just going to add to its troubles.
In a recent press release the company has said that
“While a number of intu’s shareholders and potential new investors indicated their support for an equity raise, the Board believes the current uncertainty in the equity markets and retail property investment markets precluded a number of potential investors from committing capital into the business and intu was therefore unable to reach the target quantum at the current time. However, during this process, intu received several expressions of interest to explore alternative capital structures and asset disposals.”
Doubtless the big boys will be hit, but the crisis will be no less severe for the small-scale private landlord, the student landlord and the smaller commercial property landlords with high street retail premises. The latter will no doubt be watching closely the Chancellor’s speech today for any sign of the anticipated help with business rates.