How COVID-19 Changes Real Estate Investing
From the end of 2020 viewpoint, the COVID 19 pandemic is still far from over. Even though some countries are already introducing vaccines, we can expect the whole thing to last until Summer 2021 or even longer.
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.
Will Property Prices Fall Because of Unemployment?
After an all-time high of 14,7% percent unemployment in April, the US labor 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, still a lot of people are left without income, therefore not in the position to acquire any property or even in the 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.
Furthermore, we can expect that prices will rise even steeper; while people continue to give birth and to 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 to 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. With these unimaginable sums hopefully helping to find a vaccine and to end the crisis, everyone understands that this sum has been paid by someone.
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 completely. 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 central area of the city 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 normal 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 center. For the real estate industry that means that there will be a shift from center 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.
It goes without saying that 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.