• Wednesday, Oct 28, 2020
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Changing fortunes across the world

  • Published at 09:17 pm August 10th, 2020
Changing fortunes across the world

May saw property sales jump 9.7% month-to-month and the growth is expected to continue in the next 12 to 18 months

It has been five months, and counting, since the real estate (RE) world markets around the world were forced into an upheaval. In just a few months, the global RE market went from being comfortable to experiencing confusion. And now, it is in a state of flux. There is no uniform or stable market-condition in the world — every region is experiencing its own isolated thing. While it is not as if it was ever in unison to begin with,the disparity, it seems, is now more than ever — so far so that even some sub-regional property markets have witnessed different upward or downward trends that is different from the national RE market of that region.

Surprisingly, though, the general consensus regarding the biggest real estate markets in the world is more favourable than it was just a few months ago — during the onset of the pandemic.In fact, in many cases the expected outcome was quite grim. The mortgage giant Fannie Mae predicted that the US housing market would experience a 15% decline in home sales in 2020 as unemployment in the country continued to rise and housing supply remained low.The driving force behind this decline in home sales was expected to be existing homes — which would, according to estimates, drop to an annual rate of 4.54 million units, in comparison to 5.34 million in 2019. As a result, there were fears of another “housing market crash” similar to that of the great economic recession of 2008.

However, even though the same problems persist a couple of months down the road, the US housing market has completely turned around its fortune. The reopening of the economy and the RE market reignited the passion of the people. Coupled with a record-low mortgage rate of less than 3%, the housing market in the US exploded due to pent-up demand for homes. Existing home sales saw a 20.7% month-to-month increase from May to June and new home sales rose by a staggering 55%, which is the highest percentage of increase in the last 13 years!Sub-regional markets like the one in Phoenix, which was plummeting in March, is now considered as “hot” as possible as it witnesses an overall 55% increase in home sales. And as the available housing inventory increased by only 1.3% nationally, from May to June, it is now entirely a “seller’s market” in the US.

Elsewhere in the world, some of the property markets are still bracing for the worst while others, such as the UK housing market, is cautiously optimistic. The post-lockdown period has resulted in more confusion for the UK market. Similar to that of the US, the British real estate sector is being somewhat revitalized as pent-up property demand boils over post-lockdown. The market is experiencing a “mini-boom” at the moment as demand for real estate increases from both local and international buyers. According to the UK-based online platform Dot Residential, there has been a “noticeable” increase in international investors in June and July. About 20% of their investors hail from the Gulf region — which has been, in recent times, a major source of foreign investment in the UK.

This sudden and unexpected bounce back of the UK housing market has resulted in a slight price increase. According to the UK's Building Society and their housing price index, home prices increased by 1.7% in July. Despite an increase in prices, the demand continues to surge in the UK thanks to the introduction of stamp duty or transfer tax holiday. Stamp duties have been suspended for purchases of up to £500,000 and a tiered tax system was introduced for purchases over the specified amount — and this will continue to be in effect till March 31, 2021. While this move will have a little positive effect on a prime real estate market such as that of London where the average square foot price is about £1,700, it spells great news for smaller markets and the suburbs.

The rest of the eurozone is a mixed bag though. Continental Europe is faring far better in terms of tackling the pandemic and has eased much of the restrictions in place quicker than the rest of the world but the economy, and the RE markets, are still quite in chaos. Mortgage lending has rebounded in the eurozone post-lockdown after sharply declining in March and April, and along with it, property transaction volumes have also begun to grow. The Dutch market continues its boom as home prices and demand soar. Prices increased by 8.8% in the second quarter of this year in comparison to the same period last year even though the economy of the Netherlands is expected to shrink by 5.6% this year.However, as mentioned, all is not good in the European RE market. Spain, one of the hardest-hit property markets, is still witnessing a drop in property prices.

In China, the original epicentre of the pandemic, the housing market is rebounding as property prices are improving — as is developer profitability. May saw property sales jump 9.7% month-to-month and the growth is expected to continue in the next 12 to 18 months. There is high confidence in the market as the Chinese real estate giant KE Holdings plans to release IPO in NYSE soon. On the other end of the spectrum, some of the major cities in India have witnessed a 54% year-on-year drop in home sales due to the pandemic and restrictions. The market is currently in shambles as the top eight cities have fallen to a 10-year low. New project launches have also declined by 46% in comparison to last year as income disruptions impact sales and unsold units remain high.

Despite the losses and the economic pitfalls, it is the commercial real estate (CRE) scene that is suffering the blunt of things. The latest CBRE reports indicate that global CRE investment declined by 57% during the second quarter of 2020 in comparison to the same period last year —APAC fell by 46%, EMEA by 38% and the worst of all, the Americas region by an unbelievable 70% year-over-year. Real estate is a highly exposed sector but the commercial aspect of it is more so. The devastation of the CRE market is being driven by the lack of retail investments.Even major brands are failing to sustain their outlets and shops as businesses fall drastically as more and more people prioritize differently.

On the other hand, if retail has been the loser of the pandemic situation, industrial real estate has been the winner. E-commerce has been the biggest gainer of the entire situation, and, as a result, the demand for warehouses, kitchens for takeout food have soared unimaginably. Even traditional retailers are pivoting for ecommerce and online presence. According to the real estate services firm Jones Lang Lasalle, in the US alone, the industrial RE demand could reach an additional one billion square feet in the next five years.And this is not exclusive to the US.Singapore, Germany, India and even in Bangladesh, the rapid surge of ecommerce will require a steady supply of industrial real estate for uninterrupted supply chain and logistical support in the coming days.

According to Bloomberg, there was a 33% decrease in global real estate investment during the first six months of 2020. But if anything, the past few months have demonstrated the steadfast and resolute nature of the real estate industry. Despite the overwhelming pressure and unfavourable circumstances, many of the property markets around the world are still holding strong while some are thriving against all odds. Limited movement, travel restrictions and economic recession have had a devastating impact on the RE market, yet, they are prevailing — bringing new opportunities along. The global market, without a doubt, is still in chaos. However, things are beginning to settle down and that too, quickly.

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