Coronavirus disease, or Covid-19, has become the principal issue and theme for absolutely everyone with property buyers (and sellers) left in a commercial vacuum, unable to conduct business as a result of government measures in response to the pandemic.
Merely a few months ago, the virus was a localised outbreak in rural China, with most experts expecting a swift resolution much like previous cases such as bird and swine flu.
Fast forward to today, Covid-19 is destroying the world economy like a tsunami with economists predicting double-digit percentage contractions in major economies such as the US, the UK and Europe.
The impact on all sections of all economies has yet to be fully tallied, but when major airlines are forced to cut 80% of their schedules, when retailers lose 90%+ of their revenues and hundreds of millions are forced to stay in their homes, the eventual impact will be a crushing one that rivals the Great Depression in the early 1930s.
Just this week, US authorities announced that 3.2 million claimed unemployment benefit this month. If including part-time and self-employed workers, the real rate of people without work could stretch to as much as 8 million, in just one month. In such conditions, properties are not bought and sold and prices decline in a deflationary spiral with buyers waiting for lower prices and sellers desperate to sell in order to make ends meet.
According to economists, the eventual damage could stretch to 10-20% contractions in annual GDP, depending on the country.
For the property market, the impact will be significant including a severe contraction in house prices with a complete shutdown of property deals now in effect across Europe and the US.
In the UK, a post-election “Boris bounce” was widely expected to lift the property market with plans of around 300,000 new homes to be built in 2020. Coronavirus impacts have meant house viewings have evaporated while the housing supply has also stalled as builders down tools and wait for the pandemic to pass. Reaching the 300,000 figure has become nigh on impossible to reach.
The problems don’t stop there.
As a result of contagion fears, buyers and sellers are unable to complete transactions due to disagreements over decontamination costs with sellers particularly sensitive given the distressed state of the market.
Buyers are also skittish to buy property due to uncertainty about infection with cases being reported of buyers not willing to take ownership on the appointed day, or removals companies refusing to remove possessions due to the risk of further contamination.
In many respects, Covid-19 and contagion fears have poisoned the well for the entire property market which has meant overseas property deals are being postponed until the pandemic is over.
Even the most experienced virologists cannot provide a reasonable estimate as to when business can get back to normal. The pandemic could last weeks or even months. The worst-case scenario outlook is that restrictions on public gatherings, travel and busy social life will continue into the new year which would effectively mean almost zero property transactions for the next 9 months.
For overseas buyers and sellers, the situation is even worse.
Many countries in Europe including France and Spain adopt a “notary” system whereby legal specialists or public officials play a neutral role in drafting and witnessing authenticated contracts on behalf of their clients. In France, the notary is a public officer who operates in every area of law and is a required party for any property transaction.
The impact of coronavirus on Europe has meant most public officials have been called home and are not performing the required task of verifying and signing off on transactions. Yet again, the uncertainty about when the pandemic ends is what makes future planning and forecasting all the more difficult.
For property investors seeking to buy property for investment purposes, as well as, buyers seeking to migrate or buying property as a second home – the future is incredibly uncertain.
From a price perspective, house prices aren’t falling or rising. They are simply frozen in a non-existent market. A vacuum in which no one can buy or sell which means price discovery is almost impossible.
The theory goes that UK house prices are likely to recover and not lose too much of their traditional lustre because as and when the pandemic recedes, economic activity should resume. Historically, the British housing market has always been surprisingly resilient, even in times of economic crisis such as in 2007-09. It stands to reason to assume the same will happen following Covid-19, although the lingering effects could last much longer.
According to statistics provided by the BBC, there are around 200,000 people who are in the process of buying or selling every month. A further 500,000 have a property on the market with around 1.2 million people looking to buy a new home. Moreover, there are an estimated 5 million self-employed people who own their own home, which many will have to borrow against (and possibly default) if Covid-19 persists for several months.
Assuming those statistics are accurate, then the British property sector and house prices are likely to maintain their valuations, especially in the medium-long term after the short-term panic has died down and distressed decision-makers have left the market.
According to global real estate services provider Savills, Britain’s north-west, as well as the county of Yorkshire, are likely to experience the largest house price gains over the next five years. Savills’ analysis was penned before the pandemic, but its conclusions remain valid.
A regional divide has been developing in several Western countries in recent years, with house prices in urbanised areas rising far quicker than rural spaces.
However, considering the growing demand for housing overall, further boosted by pent up demand as a result of Covid-19 – there may well be a noticeable shift into properties in rural areas following the pandemic.
The fear and panic created by Covid-19 could have a psychological influence and encourage new buyers to pick a non-urbanised location for their property investment which would mean strong demand for properties on the outskirts of cities or in newly-built “garden cities” or towns such as Letchworth and Milton Keynes.
Instead of fretting about the state of the housing market, property buyers could soon discover that the Covid-19 pandemic is actually an opportunity in disguise.