How has Covid-19 Affected Real Estate Sectors Around the World?

The Covid-19 virus has made this year very unpredictable for everyone, whether it be economists, real estate agents or the general public. Since the past 3 months, the epidemic has affected various countries throughout the world and still continues to wreak havoc. With businesses around the world having to close their doors or adjust to a virtual workplace, the global economy looks unrecognizable. 

Real estate is one of the industries that has borne great losses due to the pandemic. However, different countries have their ways of dealing with the issue at hand. This article will discuss how the Covid-19 has affected and continues to affect the real estate sector throughout the world.

United Arab Emirates

With jobs and incomes at risk, many tenants are having trouble paying their rent. To ease their troubles, Al Husn Properties exempted rent for 3 months. Dubai Holding and Meraas announced an economic relief package worth more than AED 1 billion to partially alleviate the burdens of businesses and individuals within the company’s ecosystem. Private real estate companies such as Majid Al Futtaim and Emaar Malls might also have to freeze rents to allow tenants to manage their businesses, as is the case in other regions.

Similar measures may also be extended by office real estate landlords, such as DIFC Investments, to support businesses that aren’t operating at their usual capacities.

According to recent data, up to 50% of homebuyers up to date are not residents of UAE. Which goes to show that a large proportion of the UAE’s residential community has not yet directly invested in the property market.

A massive chunk of the investment coming in to UAE properties, comes from China. As the virus spread in China and disrupted their economy, a lot of that foreign investment stopped coming into UAE properties.

Property developers are now looking towards buyers with strong purchasing power to offset the lack of investment coming in from China. With China out of the picture, there is an increased interest from Africa, Russia, India, and UK.

The property developers and dealers have also shifted their target to the local market, where young Emiratis are buying property at the low current prices with the hopes that the property’s value will rise in the future.

Many people do recognise the long-term benefits of investing in property and while people are working from home, there has been an upward shift in online traffic, as people are researching the property market that much more.

The market and consumer confidence are generally on an upward swing, the long-term economic indicators are positive and the global property guide is showing that the price fall in UAE has slowed down which means it is going to plateau very soon before recovering.

India

The economic growth in India was already at an 11-year-low before the covid-19 pandemic halted economic activity in the country. According to data, house sales in nine major cities of India declined by 30% from October-December 2019 where the festive season failed to revive consumer confidence, which has been down due to large-scale delays in housing projects and increasing cases of builder insolvency.

The pandemic has further dampened the situation. Due to reduced manufacturing and strict restrictions, the supply of construction materials has been delayed, which could push the delivery timelines of many ongoing projects even further.

With business closures and salary cuts, job security is the first priority for many Indians at the moment. These homebuyers are likely to postpone their property decisions until they know which direction the economy is heading, and they have clarity on their job security.

However, like every other country, the government of India is trying to get a grasp on the economy before the situation gets worse. The Reserve Bank of India has injected Rs. 3.74 lakh crore and postponed all term loans by financial institutions, which will help homebuyers and developers by alleviating some of the short-term liquidity pressure.

The Real Estate Regulatory Authority in Maharashtra has announced a 3-month extension in project completion times, to facilitate the developers who are having trouble meeting their timelines due to the current pandemic.

The National Real Estate Council of India has estimated a 10-15% drop in prices of houses in the market. This could be a blessing in disguise for a country where the government was already focusing on lose cost housing. For homebuyers with an adequate cash flow and job security, this would be an excellent opportunity to invest in real estate.

United State of America

Real estate developers and agents need to understand that things will be weaker this year. Those would-be sellers who have flexibility will be able to defer, the turnover will decline, but there will still be properties coming into the market.

2020 will be a hard year for the economy. Talk of a recession is growing and a lot of small businesses are facing the prospect of low to no revenue. Which could and is leading to mass layoffs and downsizing.

In the housing market, there is to be an expected pullback from the buyers. As the worst hit country in the world by the epidemic, the incomes of Americans are at risk. Due to the reductions in income and closure of businesses, the real estate sector is expected to see price falls.

For a lot of people with wealth tied up in the share market, their wealth has been diminished. This further reduces the capacity for many people to use that wealth to buy into the housing market.

USA has an open house culture in the real estate sector, which requires the buyer’s physical presence at the location. Open houses are normally a crowded event, where all potential buyers come to the location to inspect it and ask questions about it.

These open houses are looking much different now, due to social distancing. With a lot of restrictions and total bans in some areas, selling houses is becoming very difficult. However, people are finding ways to go around the problem.

Pre-registration with a limited number of visitors is being used to ensure that a crowd does not gather at an open house. Some agents are conducting virtual open houses, where they give the potential buyers a virtual tour of the house and answer any questions the buyers may have.

Condition of the American real estate looks grim, but we must also consider that this is the worst hit country in the world. It is bound to have problems above all others. Although, all is not bad.

With dropping interest rates in the country, borrowing rates for developers have dropped. Some say there has been an increase in sellers due to the low interest rate, they want to quickly sell their property and take advantage of the favourable borrowing rates.

There has been an increased in the demand side as well. Some people in densely populated cities like New York are looking for short term rentals in the suburbs which has slightly increased the demand for rented houses.

The Federal Reserve has offered $3 trillion dollars in loans and asset purchases to prevent the economy from seizing up. Along with that, a stimulus package of $2.2 trillion has been introduced to make sure that the poorest of the country are taken care of.

Italy

2019 was a great year for real estate in Milan, the economic engine of Italy. With record office leasing of 5.2 million square feet and an all-time high office investment of 3.6 billion euros.

Milan was the only Italian city which was looking at rising home prices due to a wave of new luxury development. However, the Covid-19 pandemic changed the face of the Italian economy within just two months.

Everyone has heard about Italy in the news since this virus was declared a pandemic. The country was in a complete shut down and its death toll was sky rocketing. However, the situation has started getting better, the peak of the problem has been crossed.

Italy has moved towards partially loosening its lockdown to jump start the economy again, businesses in some regions have opened up. During the past 2-3 months, Italy’s real estate sector was affected by the lockdown the same way it has affected other countries.

A lack of job security had reduced demand along with a lack of construction materials and labour had slowed down supply.

Over a month ago the Italian government, introduced a moratorium on mortgage and other debt payments during the emergency, to help consumers and businesses cope. During the first week of April, deals had been stopped, with investors becoming more cautious, mainly for value-add deals.

Corporate occupiers have started considering different office layouts to allow employees to come back to the office and still maintain a safe social distance. It may still be too early to assess long-term space requirements but it can be assumed that offices, in the future, would require a greater area per square feet for the same number of employees.

Market sentiment has become more stable compared to the previous week but the ‘wait and see’ approach is common among investors, landlords, corporates and, in general, real estate players.

Some investors, mainly opportunistic, started to ask for new opportunities with higher returns. On the other hand, vendors are still reluctant to put new assets on the market before understanding how tenants’ requests will impact prices and yields.

As mentioned in the discussion above, it seems that the overall trend around the world is towards sustainability and adaptability. Whether it be through deferred rent payments, virtual open houses, or changing marketing strategies.

It is a widely accepted reality that economies are struggling and the real sector has taken a big hit. However, as discussed above, all countries are trying their best to handle the situation in whatever way they see fit, to ensure the least amount of damage to the economy. All predictions from various countries suggest that the worst is now over.

It will get better.

The economy will recover. People will go back to offices. People will go back to open houses. Prices will go back to normal. Things will eventually bounce back – but there will be some business casualties along the way.