The 2020 global COVID-19 pandemic has devastated the world’s economy. As a by-product of the crisis, there have been several short and long-term effects on various industries, with the real estate market hit hard.
This is especially true in countries that were worst hit by the virus, such as Italy, United States, and China. The ongoing outbreak and its effect on the global economy have pushed the real estate market to its lowest level.
In fact, according to a report by Knight Frank, there will be a degradation in both residential and commercial real estate sectors. The duration of this effect will depend on the country. For some, they will feel the everlasting effect for years while others a few more months. In some countries where tourism plays an important role in maintaining the country’s GDP, the real estate sector will be affected for a long time.
The real estate market had foreseen a head start in 2019, with many Asian countries becoming the real estate market’s hotspots. The last quarter of 2019 infused super confidence in the real estate market, with 2020 being a hopeful for investors. Yet, as the pandemic hit and many countries went into lockdown, the industry fell to a standstill, where exact recovery is still uncertain. Full recovery might take between 12 to 24 months, which is at the point of no resurgence. Yet, as many people know about the coronavirus, it continues to rear its ugly head back whenever we think it’s gone.
How property prices will be affected
Property prices may be forced to go down 10% to even 30%. The devastating effects of COVID-19 have forced nations to announce complete lockdown, making it impossible for buyers or traders to buy or sell property.
While some experts suggest a complete fall of property prices with both medium to long-term implications, others suggest that real estate prices are likely to show an upward movement in the post-coronavirus world.
China’s influence on real estate
Whether it’s via the large property purchases in countries like Canada or Australia, there is no doubt that Chinese investors play a huge part in shifting the real estate market, from prices to demand.
The major allied industries helping the construction and real estate sectors worldwide are the iron ore and steel industry. Since the pandemic, China was forced to close two-thirds of its industries, thus hampering the supply of essential construction materials and affecting its long-economic reign. The places under lockdown in China consist of almost 90% of China’s copper industries, 60% of steel manufacturing industries, and 40% local output.
In a nutshell, for any company or industry dependent on China in some way or form, this will greatly affect the way business will be run, with real estate being no different.
Impact of the pandemic on tourism and real estate
The tourism industry is an important part of the economy in many countries. In a year, millions of tourists visit different countries and spend billions of dollars, contributing to a major part of their GDP. For example, the tourism industry in Thailand contributes about 12-20% of the country’s total GDP.
Foreign direct investment is directly proportional to the tourism industry. Many residential and commercial real estate sectors are made and run by foreign investments. But due to worldwide lockdown, hotels, clubs, casinos, and other tourist sectors are being shut down, causing huge losses to their owners.
If we look at Thailand, it is one of the most prosperous countries for tourism as mentioned above. Despite economic crashes (1997), tsunamis (2004), and political violence (2010), the country has withstood countless obstacles and even been nicknamed ‘Teflon Thailand’ for its robust tourism sector. In 2019 alone, it reached 39 million foreign tourists, earning the country USD$60 billion. Among those tourists, 10 million alone were Chinese.
Yet, with the virus, popular destinations such as Phuket and Pattaya have closed down, and with that, a country so reliant on tourism to shape its GDP has been hit severely hard. In fact, Thailand remains one of the hardest hit economies in the Southeast Asian region, expected to see a major economic contraction between 4.8 and 6.7%.
Relief for the real estate market
The Coronavirus crisis has devastated both residential and commercial real estate property sectors, to say the least. Governments have been struggling to keep the market above water. To counteract this, many countries around the globe have procured several measures that might help allay the hits on the real estate sector.
- The Australian government has reduced the benchmark repo rates for ensuring liquidity and capital flows. An amount of 90 billion AUD is also allocated to support the country’s unbalanced economy.
- The French government has declared that contractors or developers shouldn’t have to pay a penalty on any attributes for delays caused by this pandemic.
- The US government is reluctant to declare real estate as an essential service, but Congress has proposed a financial package to provide relief to federally funded projects. The package is still due for a vote.
- The Canadian government has passed a bill to allot $27 billion to support construction workers and laborers. Cities like Ontario also mark construction and real estate under essential services along with publishing safety guidelines amid the COVID-19 outbreak.
- The Singaporean government has made special provisions to support construction workers and laborers. The government has allowed a refund for construction companies starting from April 1st, 2020.
- The UAE government, which is considered an important hotspot for real estate, has rolled out a special package for medium and small enterprises and the construction industry. Another $27 billion is also allocated for aiding the country’s economy.
- The United Nations and International Monetary Fund have urged the poorest countries to put the debt on hold to cope up with this crisis.
- The World Bank has announced they will release a $14 billion package to aid the countries who are fighting valiantly against the Coronavirus menace.
- Several other European countries have either halted evictions or provided temporary mortgage relief to citizens. Commercial real estate owners have also been offered mortgage holidays.
- Countries like Brazil have cut the policy rates to infuse liquidity and capital growth in the market.
- The Chinese government has released 800 billion Yuan to support the country’s degrading economy.
- The Italian government, which has been struggling to tackle the ongoing COVID-19 crisis, has also formulated an emergency purchase program to support the economy.
Like any other industry or business sector, the real estate industry will also face several negative consequences, but it will recover eventually.
As we near the second quarter of 2021, it’s only a matter of time to see how the world will change in the coming months, and whether or not countries once closed will open again. As seen above, governments are taking action to do what they can to relieve the pain caused by the virus itself. However, it is only a matter of time to see whether or not this can last.