Real Estate: The property market in 2023
For many of us, Christmas is a much needed chance to pause for breath, to enjoy precious time with family and friends and to reflect on the year that has gone by. It heralds an opportunity to step back from the daily pressures of our working lives and offers us the space to set new objectives and to prepare mentally and physically for the challenges of a new year.
Christmas is full of traditions repeated year after year. Unlike the Ghost of Christmas Past showing Scrooge how to change beyond recognition, the property market tends to follow predictable patterns. Looking back and appreciating what has gone before will, for those willing and able to capitalise on the turbulence of the economic markets, undoubtedly lead to enhanced opportunities. Those investors and developers willing to take advantage of a period of uncertainty may well reap the rewards, while the more cautious investors miss out.
After the chaos reaped on the markets in 2020 and 2021, we may have been forgiven for thinking 2022 might be more typical in terms of the UK property market. However, it is fair to say 2022 has been an unusual year too. The increased activity levels in the residential property market, arising from the Government incentives introduced to simulate the market to tide us through COVID, in turn exacerbated increases in property prices and even stronger competition due to a shortage of supply. The fallout from COVID continued to influence the market before then adding into the mix yet more turbulence arising from the sharp increases in inflation, the Russian invasion of Ukraine and, as the year comes to a close, the realities of a “cost of living” crisis starting to bite.
So where does this leave property developers and investors looking ahead to 2023?
The property and economic press are awash with predictions of what 2023 will hold for the property market. With utility costs rising sharply, mortgage interest rates increasing significantly, and the hike in the daily costs of living means that many families will be stretched financially. Disposable incomes will be falling for a number of households and many will put their plans on hold and exercise caution in their spending decisions. However, for the shrewd investor, there are opportunities presented by an economic downturn. There remains a housing crisis and owning or investing in the right property remains a reliable investment for as long as demand outstrips supply. As retail markets continue to decline along with a lack of demand for commercial office space, these buildings will often be vacant, languishing and ripe for conversion. With a relaxation in planning rules allowing permitted development rights to change the use to residential without the need for full planning permission and with stamp duty land tax due at the much lower non-residential rates, it is not hard to see why savvy, smaller scale developers may turn their attention to developing these properties.
While 2023 may well see a rise in repossessions and a drop in property sales and values, it is not all doom and gloom. Most experts predict we will see mortgage interest rates begin to fall with a potential new “norm” stabilising at around 4-5%. Inflation is expected to gradually levelling off and beginning to drop. Even if we hit the predicted reduction of 10% in average property values, that percentage needs to be set against the fact that property prices grew by around 15.5% in the year to July 2022. Any adjustments in interest rates and values could therefore be perceived more of as a case of the long-overheated market recalibrating itself rather than boom or bust.
While some property developers and investors will undoubtedly bide their time and hold back on new acquisitions and projects as they navigate the uncertainty of 2023, there will be plenty of examples where others will seize the opportunities borne from uncertain markets and the risk aversion and hesitancy of others. We very much look forward to continuing to support our clients as the new year unfolds and to providing them with the expertise they need to navigate their way through 2023.
This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.
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