Covid-19 lockdown to cost UK's housing market US$18 billion in lost sales

By Cheryl Arcibalcheryl.arcibal@scmp.com / https://www.scmp.com/business/article/3080884/covid-19-lockdown-cost-uks-housing-market-us18-billion-lost-sales?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3080884 | April 28, 2020 12:09 PM SGT
The coronavirus-induced lockdown in the UK is expected to cost the country's housing market and associated businesses an estimated £14.3 billion (US$17.8 billion) in lost revenue this year, according to Knight Frank.
The UK was initially placed on a three-week lockdown from March 23, but that has been extended for at least three more weeks as the British government takes steps to contain the Covid-19 outbreak that has affected 126,000 people and claimed 16,500 lives as of Tuesday.
The consultancy said the restrictions will subsequently result in 526,000 fewer home sales this year and 350,000 fewer mortgage approvals, including 150,000 mortgages for first-time buyers. It would also lead to a loss of £7.9 billion in do-it-yourself and renovation spending, £4.4 billion in stamp duty, £1.6 billion in value added tax and £395 million in earnings for removal companies, it added.
ADVERTISEMENT
The real estate market was worth £101.2 billion in 2018 and contributed 7 per cent to UK's economic output.
A housing estate in High Wycombe, UK. Photo: Bloomberg
"This fall in activity will be multiplied across the economy," Knight Frank said. "There will be a wider economic impact, including the loss of employment and general mobility."
Savills' estimates of the decline in UK housing transactions almost match rival Knight Frank's forecast. It said that volumes this year could drop to as low as 566,000 or 52 per cent lower than its previous forecast of 1.2 million. House prices, meanwhile, could fall between 5 per cent and 10 per cent.
ADVERTISEMENT
Last week, Reuters reported quoting the Office for Budget Responsibility (OBR) that Britain's economy could shrink by 13 per cent this year due to the shutdown, its deepest recession in three centuries. In the second quarter alone, economic output could plunge by 35 per cent, with the unemployment rate more than doubling to 10 per cent. The OBR said that a bounce-back may come later in the year if restrictions on public life to slow the spread of the coronavirus are lifted.
"The entire estate agency business in the UK has been paused by government restrictions, so collectively, we as an industry will see a drop in total house transactions for the calendar year," said Guy Robinson, senior director and head of residential agency at London-based Strutt & Parker, an affiliate of Christie's International Real Estate.
Robinson forecasts a decline of 25 per cent in home transactions, but this may increase to as much as 40 per cent depending on the duration of the lockdown.
ADVERTISEMENT
To revive the flagging housing market, Knight Frank said the housing market requires massive stimulus from the government.
"The biggest win for the sector will be for the government to offer a stamp duty holiday," said Liam Bailey, global head of research at Knight Frank. "This could cost the government several billions of pounds in the near-term " however this needs to be weighed against the uptick in activity not only in house sales, but also renovation spend and increased labour market mobility " which will be a fundamental issue following the release of the lockdown."
Sign up now and get a 10% discount (original price US$400) off the China AI Report 2020 by SCMP Research. Learn about the AI ambitions of Alibaba, Baidu & JD.com through our in-depth case studies, and explore new applications of AI across industries. The report also includes exclusive access to webinars to interact with C-level executives from leading China AI companies (via live Q&A sessions). Offer valid until 31 May 2020.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.