The COVID-19 pandemic has affected the real estate industry in many different ways around the world, primarily depending upon the region and asset categorisation.
However, the overall effect of the Coronavirus outbreak, which can be felt globally today, is somewhat the same and focuses on certain areas more.
Real estate companies are trying to preserve value and liquidity while making sure that their tenants and visitors are safe.
Realtors are employing superior cleaning measures, hygienic practices, and complying with the regulatory requirements by the governmental agencies to do their part in stopping the spread of the virus.
However, as real estate sales are mostly reliant on on-site visits, physical documentation, and in-person negotiations, the industry is being affected in many unprecedented ways.
Below are 4 ways in which the COVID-19 pandemic has impacted the real estate industry.
The enterprise value of real estate assets has fallen in certain sectors, such as hospitality and leisure, but it is not the same across all asset classes.
The commercial real estate market, which is dependent on human density like shopping malls and healthcare facilities, saw a decline in consumer demand and value due to the pandemic.
However, the residential real estate market is not that much affected by it.
A recent study by OJO Labs highlighted that around 80% of homebuyers have either delayed their property search or dropped it altogether in the first quarter of 2020.
When asked about the reasoning for the decision, 60% of the participants cited uncertainties over their future employment status, while 54% referred to the inability to visit the property in-person.
Interestingly, the study found that those who delayed their housing search are still checking out available listings.
The reports also said that 20% of the participants were looking for expediting their property search in the wake of the Coronavirus outbreak.
They cited low interest rates and the chances of getting a better deal for their decision. Yet again, it was also seen that most of them were repeat buyers.
So while the consumer behavior is largely affected by the pandemic, many buyers still want to look for good housing options.
While there was always the need for adopting digital tools in real estate due to the advancements in technology, COVID-19 has accelerated the trend.
The real estate industry was steadily moving toward digitisation for creating enhanced user experience before the crisis.
The lockdowns and physical distancing have now amplified the importance of digitization and motivated realtors to invest in digital technologies for boosting sales and leasing.
Technology is transforming the way the real estate industry operates.
The industry is adopting technology solutions in the form of off the shelf products or custom solutions to meet the unique needs of the buyers and sellers.
Custom software development or PropTech companies can help to harness digital innovation to serve agents, buyers, clients or other stakeholders in the real estate ecosystem.
Citing the OJO Labs study, Forbes highlights that around 25% of homebuyers are looking at video tours of the property even if they delayed their search or buying decision.
Many realtors realized the growing demand for virtual property tours even before the pandemic. This has helped them to market their listings more actively.
These real estate companies are leveraging digital technologies like the Internet of Things, data proliferation, and Augmented Reality/Virtual Reality tools to help their customers find the right property for their needs.
As more users are adopting digital-first products and services these days, the user expectations are going higher day-by-day.
This has mandated real estate players to come up with smart strategies and speed up their digital transformation process to provide a differentiated experience to consumers.
Adopting digital tools will also help realtors to ensure customer loyalty and create new revenue streams by meeting the growing demands of users.
Case Study: Self-Showing App – a Real Estate IoT Application
The impact of COVID-19 on the financial side of the real estate sector is more visible.
It is reported that the housing prices have not dropped that significantly due to the pandemic as many had expected.
In fact, real estate was experiencing fluctuations in investments even before the Coronavirus outbreak.
So while there has been a slight variation in the pricing due to COVID-19 depending upon the region and property type, real estate can still be considered as an attractive asset class for the long term.
Yet, on the other hand, commercial real estate pricing has become more complicated.
As goods and human movement has slowed down because of the pandemic, the yield from real estate sales is expected to decline.
The lockdowns have also affected the expected rates of return for construction and letting.
The development of new properties is delayed, while social distancing measures have curtailed the ability of commercial establishments to generate steady revenue.
The future of the real estate industry remains uncertain like it always has been; while many companies are looking to downsize, others are upgrading to cater to the varying user demands.
It is expected that consumer demand will shift toward flexible spaces and high-quality properties, as the lockdowns and work-from-home experiences have exposed the drawbacks of energy-intensive buildings.
Therefore, when the demands go up for a safer, energy-efficient, and healthy living environment, the pricing is also likely to change.
Real Estate Policies
Most of the countries have implemented some changes to the existing real estate policies to ease the burden on tenants and property owners.
According to the reports of JLL, around 34 states in the US have temporarily banned evictions.
Likewise, the US federal government has also issued a 120-day moratorium on evictions from properties that are federally subsidised or backed by a federally approved mortgage loan.
The construction of new projects has also been halted in certain states.
Similar actions by the government can be seen in several countries across Europe as well.
For instance, countries like the UK, France, and Germany have suspended evictions, while others like Italy are providing temporary mortgage relief.
Commercial and residential property occupants have also been provided mortgage and rent holidays in certain regions in Europe.
Moreover, countries like France and Italy have stopped new constructions as well. Banks are also encouraged not to foreclose on late payments across Europe.
The real estate policy reforms are seen in certain Asian countries as well.
Property owners are offering provisional rental rebates and discounts, while government bodies are considering legislation to protect tenants who are unable to pay rents due to the effects of COVID-19.
Banks are recommended to give forbearance and enforce moratorium policies wherever applicable.
It cannot be denied that the real estate industry has been impacted by the Coronavirus outbreak just as the pandemic has affected all other aspects of human life.
Yet the effects are not that grave as most industry experts expected it to be and more outcomes are yet to unfold.
As for now, real estate continues to remain a lucrative asset option that would offer good risk-adjusted returns in the future.