Closed working sites, empty open-plan office, no new properties on sale. After being a health crisis spreading across the world, the corona virus pandemic continues to hit the economy, we will discuss the corona virus impact on real estate industry .
In just a matter of months, life on earth has changed. The world is going through a severe economic crisis because of Coronavirus. Due to lockdown regulations, the real estate market is then truly interrupted.
Aside from the impossibility of organizing visits, sellers are also facing hesitations from buyers’ side. According to specialists, prices could drop in major cities from 5 to 10% in average this year.
A quick comparison to the 2008 financial crisis
According to S&P CoreLogic Case-Shiller Home Price Indices, the subprime mortgage crisis, caused by the real estate bubble of 2008, affected over half of the U.S. states. Housing prices peaked in early 2006, then started to decline in 2006 and 2007. On December 30, 2008, the home price index reported its largest price drop in its history, and reached new lows in 2012.
Even if it’s too early to assess the impact of the coronavirus crisis on real estate, we can see a major difference with the subprime crisis.
Yes, interest rates are dropping sharply, and prices have gone up for months.
But this time the crisis is not originated by bank’s speculations, securitization, and easy money, but rather originated by an uncontrolled external source!
This health crisis and lock down regulations had the following effects on the real estate market:
- Lower properties visits due to social distancing
- Lesser properties on sale
- Lower interest of investors in the real estate market
- Banks are late in financing and mortgage applications
- Speculation on a drop in prices
- No more construction
- Material delays
- Legal issues
- Economic issues for physical shops and businesses to pay their rent
“The positive impact could be the acceleration of the digitalization of the real estate market!”
This will be the subject of a dedicated article
No more deals due to social distancing
The real estate market runs on physical collaboration. No one takes the risk of buying a property without seeing it. Indeed, buyers need to see properties or buildings physically and by themselves before buying it and investing a such huge amount of money.
The problem is that, due the pandemic, everyone is going through the process of self-isolation because it is the ultimate way to keep ourselves safe from this virus.
People are not going outside without serious reasons and are avoiding meeting other people. The fact is that most people are now afraid and are trying to save their money for time of needs because no one has any idea when this will all be going to an end. Most of housing projects are abandoned or postponed because of new priorities.
Furthermore, formers potential buyers are now potentially jobless, and their funding application will be rejected by banks. Due to lock down regulations, and no employee’s physical presence, banks are also overloaded by pre-crisis funding applications and are facing challenges to meet buyers funding demands. Some banks are even rejecting new funding applications!
Lower construction and lack of material
Another consequence of Covid-19 is on the construction part of real estate business. In fact, due to the lock down of many businesses like shopping malls and restaurants, many construction projects ended. In fact, exactly like individuals, businesses are now also trying to save money for a time when the situation can get worst. They are even struggling to pay their rent!
Therefore, there is no more investments in construction or enlargement of workplaces. Construction companies are also facing lockdown regulations and lack of workers due to employee’s safety.
Just like other people, the people who are working for the real estate market have a huge chance of being infected by Covid-19. As housing construction is not as essential as food shops, companies are not risking their reputation by risking their employee’s health. Corona virus impact on real estate has great repurcussions.
Then, the real estate market also needs construction material for building projects. Due to the pandemic, investors and construction companies are facing huge delays in the reception of materials. It can take several weeks to supply one thing from one place to another.
Covid-19 has already started a few months ago, but no one knows about when it’s going to end. In this a situation of uncertainty, people and businesses are saving their money wherever it’s possible.
And the real estate market is facing a severe downfall and corona virus impact on real estate is devastating.
Aside the economic crisis, the whole real estate industry will need to face two new challenges in the near future: teleworking and digitalization.
If you want to read more about the psychologic impact on people of the Coronavirus crisis, you can visit our post dedicated to sleep deprive and insomnia.
You can also learn more about the effect of coronavirus on the video conferencing industry