How COVID-19 Changes Real Estate Investing

Many experts also assume that the virus will never vanish completely, but come back from time to time, similar to, for example, the Influenza virus. To keep safe from further infections and also because of the side-effects caused by fighting the virus, analysts expect the Real Estate Market to change drastically. Read our blog post on how COVID -19 might change the market to stay alert for further developments and find out predictions for house prices in 2021.

How Have House Prices Changed Since March 2020

Many people wonder: will house prices drop after coronavirus? In order to examine that, it’s necessary to do research on the statistics.

The prices for the property have significantly changed since the Covid-19 captured control over the world's functioning. Let’s have a look at the UK property prices.

Great Britain went through a substantial rise in cost for realty. Since the housing market had been shut down a year ago, house prices in London have risen by 6.2 per cent, the fastest increase since 2016. The industry was shut down for two months in spring, causing fears of a crash that never materialized and reopening with minimal government notice.

While national lockdowns reduced GDP (total income of the country) by 10%, property prices in the capital increased in the other way. As the real estate industry went virtual, some people bought their first property without even seeing it, and agents reported a record in August — traditionally the slowest month of the year. This is unusual in a recession and will deepen the housing crisis.

In the aftermath of the global financial crisis of 2008, property prices fell by 17.8% as indebted households sold their homes fast and inexpensively. Hence, the financial experts say that Covid-19 is not the same as the financial disaster in terms of economics: it is a cash crisis, not a debt crisis.

So, are house prices falling? According to a new analysis from Savills, despite financial turmoil, rumours of people fleeing London in droves, and the paralysis of the arts, hotel, and tourism industries, the total worth of property in the capital has risen to £1.8 trillion during the pandemic. Lawrence Bowles, an analyst at Savills, indicates that it's the first time that London housing prices and economic activity have differed to such a degree. As a result of the pandemic, people reconsidered their home needs and preferences, resulting in an unanticipated rise in sales in the second half of 2020.”

Will Property Prices Fall Because of Unemployment?

After an all-time high of 14,7% per cent unemployment in April, the US labour market has significantly recovered and stands at currently 8,4%. The newest data available for the European Union is for July, where around 7,9% of people in the overall EU were out of work.

That means that even though the situation on both sides of the Atlantic and in each single member State of the US and the EU is quite different, many people are still left without income. Therefore, they are not able to acquire any property or even need to sell what they already have.

Nevertheless, the impact on the market has not been as big as expected. Experts say that for many years, the demand for living space was much higher than the supply. This is especially the case for middle and big cities because people still move there from minor cities and from outside the country.

So, in the end, as long as the overall population tends to grow, the demand for residential buildings will be high. People will always need a “roof over their heads,” so prices will continue to grow even in times of crisis.

Let’s take a look at the types of property that got influenced by the pandemic. An increase in sales is noticed when it comes to semi-detached and detached homes. It also demonstrates the massive surge in demand for a garden following the first lockdown, as well as a shift in property values.

The experts note that the absence of a separate reception room might also devalue a home at the moment. They note that before Covid-19, people tended to have an open-plan kitchen area that could occupy the whole floor (downstairs, for example). As for now, people prefer to have a separate reception room to have some privacy, which influences the real estate market as well. Hence, we see that individuals start putting the walls back in order to be able to find some solitude.

Considering all the aforementioned, it can be concluded pretty precisely what will happen to house prices in 2021. Furthermore, we can expect that prices will rise even steeper; while people continue to give birth and migrate from crisis-ridden areas to more solid ones, construction has been put on hold for the workers’ safety. So the supply will continue to be way lower than the demand.

Rising Taxes to Finance the Battle on Covid-19 Makes Rent Even More Expensive

Adding to the direct costs of acquiring medical equipment, financial aid for unemployed people, and the loss of income taxes from those unemployed, governments around the whole spend lots of money to stimulate the economy and create new jobs.

The US alone spends $150 billion through the Coronavirus Aid, Recovery, and Economic Security Act (CARES and the Leaders of the European Union have agreed to spend €750 billion to tackle the crisis caused by the virus. Hopefully, with these unimaginable sums helping to find a vaccine and end the crisis, everyone understands that someone has paid this sum.

Many countries have already introduced higher taxes or one-time fees for their population. And as naturally, taxpayers try to avoid these additional financial burdens, tax offices often turn to the real estate sector because it is nearly impossible to hide anything here. So, for example, the fees for buying and selling have already been increased in many countries, general taxes of owners apparently will be next.

As for the real estate economy, it can be expected that a lot of the additional costs will be handed down to clients and tenants. Or maybe some projects will be put on hold entirely. In both cases, that means higher costs for the final consumer and additional workload for those working in the industry.

Need for Bigger Homes Which are Suitable for Home Office

When everyone plans to remain at home, these homes become an important topic as well. In recent years, many people, especially young urban professionals, often held only a small apartment in the city's central area they were working in.

They had their office close by, went to restaurants and cafés instead of cooking, regularly went to a fitness club regularly and generally didn’t spend much time at home. With the lockdown and home offices, many of those young professionals were cut off from their regular lifestyle, finding out that maybe they would want to trade in their apartment in a central area for something larger but more on the outskirts.

Not only so that a standard kitchen, a room for working from home, and some sports equipment would fit in, but also to generally relax more and feel more “at home” than in their anonymous apartment in the centre. For the real estate industry, that means that there will be a shift from centre to the edges, areas that have for a long time been neglected by the market.

The demand for larger homes will rise, and many will even want to leave the city to have more space and more green around them; given that they find proper infrastructure and internet connection there.

So for the industry, it is time to hurry: Be the first to find grandma’s old hat, completely renovate it and make it applicable to modern living standards because such an estate can turn out like gold in the post-corona real estate economy.

Conclusion

It goes without saying that house prices after coronavirus have changed substantially.

Covid-19 will have a lasting effect on the real estate market. Many trends that started long before, as the rise of online shopping, have gained momentum during the lockdown, and people will not easily forget that suddenly they did not have to spend over 1 hour in a traffic jam to turn on a computer not much different from their own.

Nevertheless, the transformation process is far from over yet and due to constant change. It depends on the ability of the real estate industry and its agents to reposition themselves in such a way that they will emerge stronger from the crisis.