The likely impact of COVID-19 on the Real Estate Market

Forecasts for the economic effects of the coronavirus for the global economy are dubious. The World Bank estimates for 2020 a fall in global GDP of 5.2% and according to the International Labor Organization (ILO), 81% of the global workforce is affected by the pandemic. IMF sees an “uneven” and “uncertain” economic recovery from the global lockdown in 2021. There is a huge mess.

Pandemic, tourism and real estate market

There is much uncertainty about the duration of the pandemic and how it will alter both tourism and the market for buying and renting homes.

The temporary closure of borders and restrictions on mobility have affected international demand, both for the purchase of apartments and for rentals. Another question will be whether this decline translates into lower prices.

Lockdown already affects tourist rentals, causing owners to opt for long-term rental in these uncertain times.

Furthermore, the pandemic has spread asymmetrically: while in Europe it seems to be subsiding, in countries like ours, Russia or Brazil, it is in full force. These different speeds will be one more factor that hinders a global return to normal.

Issues such as obtaining a vaccine or effective treatment for COVID-19, possible outbreaks, and how the economy evolves in the ‘new normal’ will also need to be considered.

Construction paralysis, new buyers’ demands

Although it is still too early to take stock, the fall in GDP, the increase in unemployment and the fall in disposable income augur a fall in demand and a fall in prices in real estate.

Also, the bankruptcy and difficulties of construction companies and promoters due to the crisis and the paralysis of economic activity caused by the pandemic may affect the market for new construction homes.

The key, which nobody knows right now, is when we will be able to return to a situation like the one we had before COVID-19, with freedom of movement between countries and without having to avoid crowds.

What is clear is that, after the pandemic, new trends in purchases and rentals will take place. It is foreseeable that the demand for housing on the outskirts of cities and with landscaped areas will increase, and for residences in the countryside.

If besides, as of this crisis, work-from-home becomes normal, it is more likely that there will be movements from the usual home in the city to less urban or rural environments.

New paradigms for the sector

The real estate sector will have to look for new challenges and market niches. The rise of the coronavirus, and its effects on social habits, impose new needs on buyers and renters in search of housing.

On the other hand, due to the increase in online shopping, the pandemic has produced a great boom in the entire logistics sector, which will probably continue beyond the de-escalation. Hence, the buildings and land for large distribution platforms can be an investment opportunity in this crisis.

It will also change the way you buy and sell houses and real estate through agencies.

Real estate groups seek to approach the client through all available channels (advertisements, billboards, SMS marketing, social networks) and accompany them in all phases of the home buying process.

There is also a trend towards digitization in this market (visits to buildings through augmented reality and artificial intelligence). Physical visits to buildings will be accompanied by hygiene and prevention measures.

Even the design and construction of homes could change after the pandemic, trying to prioritize prevention, redefining common areas and designing to minimize user contact with surfaces outside their home. In addition to the location of the house, natural light, gardens, teleworking spaces and balconies will take on a new role.

The real estate market in the U.S. analyzed by Philip Barach

We reached out to a real estate prodigy from America, Philip Barach, who is most notably known as the co-founder of DoubleLine Capital LP. The firm is a fixed-income investment management company, which continues to advise and facilitate real estate investing for its committed pool of investors.

Barach for his market insights and experience in real estate investing is sought as an influencing body, who is often consulted for his advice and input on market trends.

He argues, “the real estate market in the US is experiencing one of its best stages in the middle of the pandemic. The supply of units on the market continues to fall to record levels, and home prices are, if anything, accelerating. For many homeowners stressed by the value of their investment, it is a relief.

“The main reason why house price growth accelerates amid a pandemic is that the disruption in the supply of homes persists longer than the drop in demand – potential buyers. Weekly mortgage data showed that purchase applications increased for the eighth week in a row and are approaching an 11-year high on a seasonally adjusted basis. Part of the reason for the rapid rebound in demand is the decline in mortgage interest rates to record lows.”

Learning from the crisis

It is possible that, while there is no vaccine against COVID-19, there will be outbreaks, or that new contagious diseases appear. So, let’s use this experience to prepare for these new scenarios.

Both tourism and construction are basic sectors in our economy. This pandemic and this crisis will pass, but this “downtime” should be used to improve and innovate in these sectors in which we are specialized.

After the health and economic emergency, changes in the demand for housing could help achieve a better territorial distribution of the population, improving the problems of America.

It would be a shame not to take advantage of the opportunity to stop having cities for cars (as we have seen when going out for a walk in these times of confinement), and to promote the use of bicycles lanes for travel.

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