Oberschneider: Housing market to defy COVID-induced slowdown as big picture remains unchanged
Paul Oberschneider is the founder and CEO of Hilltop Credit Partners, which provides tailored financing solutions to small to medium enterprise (SME) residential property developers in the UK.
Zoopla’s forecast that the post-lockdown surge in housing demand is likely to be ‘short-lived’ should not dampen the spirits of estate agents and developers in the UK.
They should instead focus on the rising level of confidence returning to the property market.
Since the reopening of the property market in April, the online property activity has risen by 88%, and has even surpassed all pre-lockdown levels, according to a recent report by Zoopla.
Add to this global stock markets roaring back to life, retail outlets setting out timelines to begin operations, and most office staff gearing to return to work…there is a sense of relief in the air.
This is not to suggest that the impact of coronavirus is not being felt by the housing sector, with some even predicting of a drop ranging from anywhere between 5% to 14%, and recovery periods from a few months to over a year.
The Zoopla report also talks about the increased uncertainty in the market and how any rebound could be ‘short-lived’ due to economic uncertainty and loss of income, but I’m a bit of an optimist here.
At a time when the property market is rife with uncertainty and fears around the pandemic, we at Hilltop remain committed to funding high-quality assets and developers.
In any market, the right projects, right sponsors, and the right locations get funded.
Currently, we are favourably looking at projects where we see better living and lifestyle solutions for families.
That means better building solutions, flexible space for working at home, smarter technology and space.
Hilltop is poised to disburse over £75m in the coming months, and we have recently completed a £8.6m loan for residential development in Brondesbury, London.
The primary reason behind this is that, unlike the 2008 global crisis, the housing sector is not the cause, or even at the centre, of the problem this time.
Also, the structural issue of supply-demand imbalance continues to remain across the UK along with a large funding gap.
That gap is only set to increase as high street banks with legacy exposures will look to recede further to better manage their balance sheets.
For SME housing developers, securing funding has been needlessly time-consuming and expensive for too long.
Developers generally navigate complex arrangements in the borrowing stack, because lenders are not ready to stretch enough as that would not be in line with their credit risk parameters.
This means that borrowing for a project can entail dealing with different funders which has the disadvantage of increased costs due to various professional advisors being involved. This is over and above the delay which will be inevitable if you have to deal with multiple parties.
To address these problems, we at Hilltop are focused on helping developers move quickly so they can secure sites, build homes, and sell them in a fast, cost-efficient manner.
Unlike traditional lenders, we operate like a private equity house and effectively back the management team.
We continue to see a significant upturn of demand for property development finance — for both debt and equity — from quality developers working on attractive projects.
Looking ahead to the remainder of the year, I would summarise by saying that the big picture has remained unchanged.
The shortage of affordable housing continues across the UK and developers should, albeit cautiously, continue to build houses, as the demand is not going anywhere in the long run.
Buying property is not just a financial transaction, it’s a lifestyle changer. People will always need and want homes, and no lockdown or recession can change this reality!