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The Covid-19 Effect; How is house demand changing?

When the initial lockdown hit on March 16th, the property sector effectively stood still, while all but the furthest along completions were suspended.

Buoyed by the stamp duty holiday, the property sector upon exiting lockdown has seen business booming, with house prices in September rising by as much as 5% compared to the same period last year.

However, as the realities of furlough, the Job Support Scheme and the economic impact of COVID-19 becomes clearer, banks across the UK are tightening their grip on lending, causing many to miss out on the potential savings.

To help us get a better understanding of what life has been like for homebuilders during the pandemic and beyond, Residential People spoke with housebuilder and investment company Key Land Capital and its founder Kevin Sharkey.

Residential People (RP): Firstly, thank you for taking the time to have this chat with us. For those unaware of yourself and Key Land Capital, can you give some insight into the company and your history?

Kevin Sharkey (KS): Certainly, I’m a qualified accountant with 16 years of experience, I began my career working for a number of construction businesses before getting into property development. 

My father and I started with single developments, buying small pieces of land and building single houses, before gradually scaling our business to feature 20+ units. It was around this time in 2015 that I started office-to-residential conversions and founded Key Land Capital with my former business partner Alex Sutherland.

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Kevin Sharkey, Founder of Key Land Capital

RP: How has the business been for Key Land Capital during the pandemic?

KS: It’s been a little bit challenging to be honest, as we’ve had a few issues with getting subcontractors to work on our live sites. We’ve run 3 live sites during COVID – which we have all managed to keep open, but we’ve had to reduce the number of personnel at sites in order to adhere to Government social distancing guidelines. 

Securing certain materials such as plasterboard and cement, for example, have also been problematic due to various delays, which have caused a few issues in regards to extensions to our overall timeframe. That being said, we have still managed to get to where we need to be; it’s just taken us a fair bit longer to finish the projects.

The delays have ultimately resulted in added costs from the interest of borrowing funds, so it has been somewhat problematic. Still, we’ve managed it as best as we can and are aiming to continue moving forward.

In terms of the broader market, we’ve still seen that there is a demand for housing so we’re still keen to deliver the schemes that are in our pipeline, but no doubt COVID has made it more difficult.

RP: Would you say that COVID-19 has been the most testing period of your career so far?

KS: Possibly. I previously worked through the 2008-09 recession for a sub-contractor business which was also challenging, but I think the difficulty of COVID-19 is that it’s affecting every industry. 

Overall, I think this pandemic probably is one of the most difficult periods that any industry has seen, especially as it happened so quickly, with rules and regulations on what you can and can’t do, changing on a week-to-week basis.

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The Old Art School apartment conversion by Key Land Capital (2019)

RP: What are your thoughts on furlough & subsidised wages scheme?

KS: I think furlough was timed right, the furlough scheme has been a big help, but understandably it can’t go on forever. 

The new Job Support Scheme that will replace furlough at the end of this month is something that was definitely needed. With the way things have gone in regards to the second spike in infections, it’s imperative that the Government continue to support businesses, as unfortunately many sectors at the moment cannot get back to normal trading conditions.

RP: Have you had to furlough any staff as a result of the pandemic?

KS: We’ve got 10-staff employed across the company, and at the start of the lockdown we did have to put about half of our staff on furlough. Thankfully, we managed to bring everyone back, with the final member of staff rejoining in September.

RP: What are your thoughts on the Stamp Duty Holiday? 

KS: I think the Stamp Duty Holiday is a good scheme that has been positive for selling houses and has been an incentive to get first-time buyers and previous homeowners to purchase properties. 

Overall, any help – especially during these difficult times, that can be provided to help people move up the property ladder is definitely beneficial.

RP: Do you think that once the Stamp Duty Holiday ends there might be a significant drop off in buying activity?

KS: Yes, I believe there is some potential for the end of the scheme to have a knock-on effect to house developers and housebuilders as house prices may stagnate or fall as a result. 

At present, there are definitely people using the scheme to their advantage to either commit to the purchase of a new home or buy a bigger one than they had intended as they’ll be saving a lot of cash upfront.

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Key Land Capital’s Knights House development (Sept 2019)

RP: To combat the potential drop in house sales once the holiday has passed, will you be looking into more Build to Rent (BTR) developments?

KS: Actually, BTR is something that we’ve done before the pandemic, but I think that the sector is now a bit more robust and in demand, as I foresee more potential housebuyers facing issues with getting on the property ladder. 

RP: Touching on that point, with banks being reluctant to lend to first-time buyers (and those with low deposits) how do you see this affecting your business in the near future should this continue?

KS: I think banks’ reluctance to lend to those with low deposits and first-time buyers, goes hand in hand with the general sense of nervousness in the market from lenders. 

From the lender’s point of view, it’s probably a prudent decision to refuse lower deposits from first-time buyers in order to reduce the amount of high loan-to-value ratio loans and avoid homes potentially falling into negative equity in the event of further recession.

However, from a buyer’s point of view, I can sympathise that it’s very challenging to get a 15- 20% deposit, especially in this current economic environment.

RP: Looking ahead to the future, what are the immediate plans for Key Land Captial in 2021?

KS: While I appreciate that it is challenging times, I’m still optimistic that the Government have got a big incentive to get housing built. 

The Government have released a number of planning changes over recent months, including a recent white paper that overhauls the planning system. As such, all of the signs are positive that the Government wants housebuilders and developers such as Key Land Capital to be out there delivering new homes.

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