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How coronavirus is hurting the global real estate landscape

  • Published at 04:59 pm March 24th, 2020
How coronavirus is hurting the global real estate landscape

Experts estimate that launching of new projects will see a 15-20% decrease this season and may have further effect on the commercial real estate scene

The real estate landscapes all over the world have experienced quite a lot of ups and downs during the 2010s. The global recession remained as a remnant of the previous decade for a few years and markets in various regions had difficulty overcoming the persisting challenges. However, the tail-end of the 2010s was more optimistic for the market as demand for commercial real estate grew, technology began to be more integrated and more first-time real estate investors began to enter the market — reinvigorating the global housing sectors.

The housing sectors of those in emerging markets, in particular, had the most potential and saw the most significant growth in the last few years. By all accounts, the real estate industry was on its way to a very good year, if not decade. But the unexpected presence and spread of the novel coronavirus has halted all the progress made as the world now stands still with the threat of a global recession looming overhead.

Share markets in many of the countries are currently in free fall due to the effect of the coronavirus pandemic.Markets in the US, UK, France, Germany, and South Korea all fell by 7%, while in The Philippines it fell by over 12%. This sort of economic plunge will have an impact on several aspects of the global real estate scene — even if the real estate market is much less volatile than the share market and tends to move more slowly.

There are already signs on the wall that, slowly but surely, the real estate sector is feeling this impact as evidenced by the fact that, historically, the busiest time for the US real estate market is seeing very limited activity.One in four home sellers is conflicted and confused about how their home can be shown to prospective buyers. Some are even halting pre-set open houses or thinking of pulling out their property from the market because of theCovid-19 pandemic. This is resulting in an inventory shortage all across the US market and will null the positive effects of new near-zero percentage mortgage rates.

The US real estate market had already been going through a shortage of housing units— which was increasing by about 300,000 units a year —before the pandemic hit the shores of the country, but the spread of the coronavirus has made the construction of new homes come to a crawl. Several states within the US,such as Phoenix and California, saw their listing supply go down by 42.7% and 36.2%, respectively. The same situation can also be found in other major locations of the country.

Over in China, where the pandemic started in late December last year, the real estate sector has suffered the most in terms of immediate repercussions.House sales have plummeted by 90% in 36 major cities of the country in comparison to the same period last year. Over 100 real estate developers have filed for bankruptcy in the last two months with smaller firms being the majority of the victims.

Experts estimate that home sales could go down another 15-20% in the upcoming days, and even the online real estate portals are not being able to help much. The current lockdown of the cities throughout China has created a sense of dread among the populous.As the country’s infection rate comes under control, some of the biggest developers of the country such as Evergrande Group are offering significant price cuts and lower down payments to motivate buyers to return to the market.

But the effect of the pandemic on the Chinese shores has implications for other housing markets in the world as China has been one of the major players in manufacturing and construction. In terms of volume, they are No 1 in construction machinery export, which crossed the $20 billion mark in 2017 with 40% of its demand stemming from the real estate sector. They are also one of the major exporters of iron and steel which are exported to a significant portion of the world.

However, with the closing of two-thirds of China’s production lines, the global market may imminently experience a shortage of copper, steel and coal which can result in increase in prices.

 Bangladesh’s next-door neighbour India and its real estate market are also experiencing a downturn due to the ongoing pandemic. The country has been listed as one of the most vulnerable nations, even though the number of people infected was below 400 as of Sunday. This period of the year usually sees a great surge in both supply and demand in housing as several festivals, such as Akshaya Tritiya and Navratri, are considered auspicious occasions by the people to launch new projects and buy homes.

But because of the current scenario, experts estimate that launching of new projects will see a 15-20%decrease this season and may have further effect on the commercial real estate scene, as people may not be very inclined to invest in the market — given the current situation. Furthermore, the market will probably also experience a delay in handover of the ongoing projects, since sourcing for fit-outs is done majorly from mainland China and that well maybe dry for quite some time.

The global luxury real estate scene has also come to a halt as a result of the coronavirus pandemic. In recent times, China has been the biggest buyer of such property along with traditional major players such as the US, UK and Russia. But with countries locking down their borders, individuals from these countries are deferring from buying luxury real estates in other countries because when they will actually be able to enjoy their purchase is still up in the air.

And the same goes for the commercial real estate landscape as well which, before the spread of the Covid-19, was seeing record-breaking transactions in countries like India, Italy and China. Foreign investment is slowing down right now. As production and manufacturing rates decrease to ensure worker safety and health against the virus, so does investment in commercial property. Aside from new investments, ongoing deals will also see a delay in completion as key decisionmakers may face travel restrictions.

The commercial real estate scene, though, is quite resilient — even more so than residential. As per current prognosis, the pandemic has a short shelf-life and, until something terrible happens, it will not have a prolonged stay. And while the belief is that the sector will rebound once the pandemic subsides, the current scenario is far from ideal.

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