Thanks to the current situation, many of us have remained cooped up in our houses or apartments for an unusually long time. However, the coronavirus (COVID-19) pandemic will affect more than just how you feel about your home and floor plan services. It is expected to have a significant impact on the global property market.
With the high unemployment rates, hefty pay cuts, business failures, and job uncertainties, it is quite understandable why a lot of people are reluctant to make the most significant investment of their lives – purchasing a home. As the demand for houses falls, so do the prices. This is what was experienced in the UK, the United States, and many other countries during the last recession and credit crunch.
The Nationwide house price index for May indicated a price decline of 1.7% from the previous month – the biggest drop since 2008 in the UK. However, Robert Gardner, the Nationwide’s chief economist, is optimistic that things are beginning to stabilise. He states that this is mainly because what we are currently witnessing isn’t a typical economic plunge.
Rather, the UK government, the same as with other governments, made the conscious decision to halt most economic activities. This was during the same time as a raft of measures were being put in place to help support businesses and household, for example, the worker furloughing scheme.
So, hope lies in the fact that economies and property markets will pick up as lockdown restrictions continue to ease.
Property prices are continuing to see a rise in the United States. Prof Nori Gerardo Leitz, a real estate investment lecturer at Harvard Business School, says that many parts of the country have temporarily suspended evictions, typically for 60 to 90 days, and 6 months in some areas.
What this means is that landlords and the banks have been left to deal with the immediate problems. However, people shouldn’t get comfortable, particularly considering the rocketing unemployment rates in the US ever since the lockdown – 13.3% in May, though a drop from 14.7% in April.
But, even with these headline figures, there are other variables at play in the property sector. A lot of people are taking up a remote working lifestyle or working from home and enjoying its benefits, and this is already having an impact on the market.
Rightmove, a UK property website, reports that they have seen a drastic increase in the number of people looking for homes further away from cities and town centres, with enough space for a home office and a big garden. While this may not necessarily be a permanent change, the current situation has definitely made people reconsider how and where they live and work.
The commercial property sector has seen much more dramatic changes; this is particularly so for the UK’s high streets.
According to Prof Michael White, a real estate economics expert at Nottingham Trent University, retail in the UK has been facing a lot of issues for years. He adds that incomes are currently taking a hit from layoffs, and then a reduction in spending power during a recession.
When it comes to office space owners and managers, if it just so happens that the coronavirus pandemic is a one-off hit, with them only having to defer two-quarters of rents, then there is little likelihood of property values being affected.
Generally, in these unprecedented times, two things are favouring the property market.
First and foremost, even if the property prices drop, it can still be an excellent investment. While this may seem unorthodox, a property is a long-term investment, and not only is it a secure investment, but it also pays a great return.
Therefore, in case government bonds are paying 0.5% interest a year, or less, and the property is bringing in at least 3%, then you will still have a sizeable income in case you are a global investment fund or even a private investor.