The Effect of Covid-19 on the Real Estate Market
The COVID-19 pandemic has caused almost all market segments to slow down. The real estate segment has also been clobbered by the virus. The extent will vary depending on the market and segment. It will also be dependent on the duration of economic shutdown in certain regions.
The sectors of the real estate market that have been hit the hardest are entertainment, bars, restaurants, and hotels primarily in tourist-driven regions. The next impacted area is housing and retail. The supplies required by the developers have been interrupted.
With workers staying at home due to quarantines and curfews, many businesses have decided to temporarily shut down their operations. Huge layoffs are expected in the real estate industry due to a slowdown in economic activities. These activities and several unseen forces are pushing the economy towards recession.
The property market worldwide will be impacted by the virus in some way or the other. However, this wouldn’t last for long. Properties in places where one can live a comfortable life in a self-sufficient manner and off-grid would be more in demand in the coming years.
The impact of economic disruption will vary from one region to another. The regions that are popular as prime tourist attractions have been hit the hardest.
Impact on homebuilding and housing
The builders are experiencing a pullback from the buyers. As most of the construction materials are imported from China, there has been an adverse effect on traffic observed from prospective home buyers. The sales in the segment are declining.
There is also a concern surrounding the stringent lending conditions in certain geographical areas. Follow the link to learn how COVID-19 is transforming the real estate sector – https://bit.ly/2ZhM60W. There will be certain changes to accommodate new demands that will stem during the period of crisis.
Buyers with larger debt to income ratios will struggle in getting mortgages. Several factors will impact land acquisition and development in the coming months. The development activities will slow during the period.
The stock market crash can also alter consumer spending trends. People who have incurred heavy losses on paper wealth will spend less on discretionary items. The ones who are close to retirement or are already retired will change their investment plans drastically.
The rental apartment industry is already preparing to deal with tenants who are dealing with pay cuts or are unable to make any money during the period of crisis. Landlords who are focusing on retention of their tenants will have to implement leniency for a couple of months. Also, some property owners are requesting lenders for forbearance.
Lease renewal rates were stronger before the COVID-19 pandemic hit the world. Apartment construction activities earlier were progressing at a rapid pace. Class B properties will fare well in comparison to luxury homes. Rental trends will bounce back once this crisis will pass. There will be a massive shift towards housing units that can allow work from home as well.
Impact on other real estate segments
There have been obvious impacts on the retail segment. Stores and restaurants are struggling to generate anything more than a fraction of their usual revenue. The landlords have been flooded with requests for rent relief. The retail segment is expected to bounce back once the impact of the virus subsides.
The impact on the entertainment and retail segment would be minor if we consider the long-term scenario. Check this source to learn more about the impact on the real estate segment. However, if we take a look at the long term outlook for rentals, it still appears quite promising.
The office sector is currently negative due to the social distancing norms. However, once the current crisis subsides, the offices would be bustling with workers again. The only question is the impact that work-from-home wave will have once the social distancing norms are lifted.
Some workers may continue to work from home. Some may prefer to return. If the recession extends, then the demand for new office space will be low for a certain period.
The Industrial and warehouse market is currently experiencing short-term impacts due to the disruptions in the supply chain. The effect on the segment would be negligible as online shopping is going to gain momentum in the coming months.
Effects due to government policies
The governments all over the world are formulating various policies for curbing the impact of the virus. Some of them have never been anticipated by anybody and can have a tremendous impact on the market segment. Some governments have opened the doors to unlimited easing. Massive fiscal stimulus is also coming and can have its impact on the sector.
Although the measures are important, but certain policies may hinder the recovery of the realty sector in the long term. Concerns have been expressed by the industry insiders that there could be liquidity issues due to certain policies. With an improvement in the situation, the measures would certainly be revised again by the policymakers.
What lies ahead for the real estate segment?
COVID-19 has certainly resulted in the economic disruption. It has significantly affected both supply and demand. The pace at which this outbreak will be contained will decide the fate of each market segment.
It is only then the consumers will start spending again, the economic activities in the market segment will start picking up pace. Though it may take longer than usual for the economic activities to restore, once the governments are successful in containing the virus the lag may transform into demand. Check out this post to know the real-estate trends during COVID-19: https://economictimes.indiatimes.com/wealth/real-estate/covid-19-impact-real-estate-sentiments-hit-lowest-level/articleshow/75175857.cms?from=mdr
There will be a return after pent-up demand. There will be opportunities in moments of distress. Builders are already gearing up to construct houses with facilities to assist in working from home.
With lower financing rates and various policies passed by the government, there will be an increase in demand in the realty sector. The wait is now just for the successful curb of the virus.