The COVID-19 pandemic is an unprecedented challenge that has affected the entire world. In a matter of weeks, lives have changed tremendously. Socialising and travel have minimised, while businesses have had to find other ways of operating. From consumers to manufacturers, the airline industry to the healthcare sector, COVID-19’s effects have been far-reaching, forcing companies and individuals to adapt to a new way of doing things.
The real estate sector has not been spared either, but analysts and industry experts are looking ahead to how the market will react. The UK’s property market is among one of the most resilient, so experts are hopeful of a quick turnaround. While some investors reacted early, others are preparing to make moves as soon as restrictions ease off. According to industry experts, high-net-worth individuals (HNWI) are among those maximising their liquidity in anticipation of the post-coronavirus property market.
By definition, a high-net-worth individual can be both a person or a family that has liquid assets (or net wealth) of six to seven figures or more. While the exact amount at which someone qualifies for the HNWI tag differs according to the region or financial institution, the general understanding is that such an individual is quite wealthy.
High-net-worth individuals tend to be highly sought-after by wealth managers and related professionals in the financial services industry. HNWIs with significant wealth can generally expect personalised investment management services, so that the more assets an individual has, the more work it takes to preserve them. Kevin Neal, a former independent financial advisor (IFA), has extensive experience in the wealth management sector and understands the needs wealthy individuals have.
Beyond preservation, HNWIs also look for services that will enable them to continue to build their wealth, with popular avenues for wealth creation being the stock markets and real estate.
More Liquidity, Better Results?
As HNWIs continue to maximise their liquidity, it’s apparent that many are preparing themselves for a post-COVID-19 market that may provide better results. They’re doing this in various ways, including taking up options like property refinancing. As the traditional mortgage sector witnesses its fair share of challenges, the refinancing/remortgaging sector is seeing extremely high levels of liquidity, strong competition and low interest rates.
Such a scenario would raise the question of how the refinancing valuations are being conducted, given the movement restrictions. As it is, some of the mortgage operators are resorting to desktop valuations, but with a condition on the loan-to-value (LTV) ratio being considered. These operators are only considering LTV ratios that don’t exceed 65 percent, leaving a 35 percent cushion for the operators that shield them from negative loan equity. In essence, it’s a low-risk market to remortgage an expensive property, and HNWIs are taking up this opportunity to free up more money.
While some remain sceptical about a quick economic recovery, real estate insiders portend good things for the industry. Signs such as a stable luxury property market in London suggest that many HNWIs have been financially untouched by the lockdown. When the global economy re-opens, the real estate sector will certainly have to deal with the effects, but there could be some bright spots such as the luxury property market.
As during the period after the 2008-09 global financial crisis, the real estate sector will bear some of the brunt of this ‘once in a lifetime’ event. The change in consumer behaviour will affect how individuals and businesses interact with real estate. The economic damage will take some time to calculate accurately, but the silver lining for property investors is the depressed assets that are ripe for the picking.