According to the old Sufi tale, a man and his son lived in a valley. They were happy but very poor and they wanted desperately to change this. So, feeling entrepreneurial, the man decided that he would breed horses. With money borrowed heavily from neighbours, he bought a stallion. The very night that he bought the stallion, it kicked the top bar from the fence to the paddock, where he kept it, and escaped. All the neighbours gathered around and said, “You were going to be a rich man, but your stallion has escaped and you still owe us money. You are finished!”. The man replied with a nonchalant shrug, “Good thing, bad thing, who knows?”
That stallion fell in with a group of wild horses which roamed close to his home and the man was able to lure all of the horses back to his stable where he had repaired the fence so that escape was impossible. This made him a very wealthy man in the village. The neighbours gathered around again and said, “We thought you were destitute but fortune has smiled on you and you are actually a rich man”. The man replied with a nonchalant shrug, “Good thing, bad thing, who knows?”.
The tale continues through a series of similar unfolding events to inform us that there are no such things as good or bad things. We do not know what doors a situation could open next. So, where are we in our own present day, residential property based Sufi tale, from a lawyers’ perspective?
The clearest picture exists in relation to new matters. As one would expect, these have slowed to a trickle. Typically, our team would expect to open over 110 new matters in a month giving a broad daily rate of five new matters. We are a team of eleven property lawyers of varying experience but equal enthusiasm, commitment and passion for our trade. The rate of new matter openings has slowed to one or two per day at this stage of the Lockdown.
There have been some recent attempts from our agency partners to show that they are agreeing sales despite the Lockdown. This is admirable. At the same time, the sense is that the numbers being quoted (70/80 sales during Lockdown) are at least 60% to 70% down on what they would usually be but for the Lockdown. The suspicion is that a material number of these sales are to buyers who had already viewed and expressed an interest in properties at levels that, when they first expressed them, were not acceptable to the sellers in question.
Analysing the new matters, we see that there has been a shift from traditional purchases and sales to transfers of equity and refinance/finance work. We are noting that new transactions tend to be of a new build nature. This is not a surprise when you consider that many new build schemes are sold to overseas buyers who do not necessarily need to view the property. The restrictions on movement do not impact demand in the same way. This trend is supported by our conversations with developers, particularly those with schemes in Manchester, Birmingham and Liverpool where unit prices support a purer investment- based buyer approach that eliminates the need for any viewing.
The trends noticed in ongoing files is variable. At least 50% of our ongoing cases are continuing as negotiated for the time being. In these cases, the buyers have a sufficiently compelling reason to buy. For end users, this is because they are moving for work, for lifestyle or for their families. For investors and developers, this is because they have found the product that they want to buy and at the price that they want to buy it at. One of our developer clients, for example, has exchanged on one unit and has four more in the pipeline, which it fully expects to continue with regardless of current circumstances. This developer client has a clear vision for its product, sticks to what it knows and, ultimately, believes in the resilience of the PCL market.
For approximately 25% of our ongoing matters, the current pandemic has been terminal. The buyers in these cases have decided that they do not even want to contemplate proceeding with a purchase in current market conditions. An intelligent response to this from some sellers has seen them not withdrawing altogether and instead employing an approach that says to the buyer: we do not expect you to want to exchange right now, however, you love the property and we would love you to have it so let’s hold off withdrawing altogether and let’s see where we are when the future is a little clearer. This is a creative way to underwrite a weak to non-existent Plan B sales position/outlook and gives the sellers in these cases, where the buyers have agreed with the approach, the best possible starting position when the pandemic is over.
For the balance of cases, we are either in renegotiation territory or, in a very small number of these cases, we are still waiting to see where they are heading.
The successful renegotiations that we have seen range from £200,000, representing an approximate 3% adjustment, to £1.2M, representing an approximate 7% adjustment. As one would expect there have been a number of unsuccessful renegotiations too including a very cheeky and hopeful £1M price renegotiation, representing a proposed 16% adjustment! For the most part, however, where the renegotiation proposal has been sensible then sellers are being pragmatic about their prospects particularly where there is an underlying desire to sell in the next 6/12 months, which reflects the various strands of world economic data and predictions. Our conversations with our agency partners generally support the view that renegotiations at or around the 5% mark are the norm and are being successful. The general lack of supply in PCL is being credited with supporting the market.
It is heartening to report that, for the most part, where buyers had already exchanged pre-pandemic and are now experiencing difficulty with completing, a material proportion of sellers are being understanding and agreeing extensions to the completion timetable. We have successfully agreed a second extension recently for a client buying at £8M. This approach from sellers contrasts starkly with the approach seen during the 2008 banking crisis where little room was given from the same quarters. This, we believe, reflects the nature of the crisis and the heartfelt response that there has been to it globally.
So, what next? Rather than become distracted by what the statistics tell us, we are focusing on making sure that our business is structured to be resilient during this time, as best we can. We are using the time to train, sharpen our skills and to undertake a strategic review of how we want to operate on the other side of this pandemic.
As I sit and write this article, I look through the window with dreamlike thoughts of all of the things that I am going to do to the fullest as soon as this much needed, but equally limiting and frustrating Lockdown is over. I plan to make my time count many times over. This, of course, is the very same thought that every seller, buyer, developer and investor will be sharing, keenly waiting for the moment that the PCL property market is finally freed up again. The pent-up demand will be ready to explode many times over. This version of events is well reflected in most economic predictions for 2021. We fully intend to be present and ready when the time comes!
Good thing, bad thing, who knows?
