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Real Estate VS Lockdown

June 17, 2020

Coronavirus pandemic, self-isolation, closure of businesses and the lockdown result in a significant impact on the world’s economy. The economical consequences of the pandemic also affected the real estate industry greatly. 

Regrettably, the number of those who have fallen sick by the COVID-19 is increasing, so the governments of many countries are extending the lockdown and quarantine. While the situation with the economy remains under severe stress, the forced isolation and shutdown of the companies will have a further negative effect on the world economy.

Real estate sector during the quarantine period

So, let us find out the state of the real estate sector during the lockdown. According to recent information, there is a high demand for the units of a small size. The interest in the ready-to-move properties remains high, while the developers are reluctant to launch the new projects. 

Real estate sector during the quarantine period
Real estate sector during the quarantine period

Due to the social distancing rules, people are not visiting properties but the homebuyers and the clients of real estate agencies are now moving through every stage of the booking process with the help of the new technologies. The process of purchasing a property does not necessarily require the home inspection. Nowadays the clients can do everything online from the inquiry to the inspection via augmented reality solutions. Also, the customers of the real estate agencies can log in the website and see how the projects under construction will look in the future via augmented reality headset or glasses.

The low interest rates and the reduced level of volatility attract potential investors. However, the homebuyers need to be attentive and check past projects by the developers before cutting a deal. Despite the lucrative opportunities during the pandemic of COVID-19, the risks of investing in real estate remain quite high.

Things to consider if you are a buyer

If you are the real estate buyer, you need to take into consideration a few things before purchasing the investment property. Before buying the house or apartment, try to give the answers to the following questions.

  • What is your motivation to purchase the property? Think about your future goals, whether you are trying to improve your accommodation or your goal is financial security. The stocks are not performing well as it was before, so the real estate may be a good option for the long-term investment.
  • Are you able to manage the obligations of buying the property? The additional expenses for the investors include the down payment, operating costs like maintenance of the property, taxes, insurance and equated monthly installment. You need to be sure of your job to prevent yourself from the risks and negative consequences. If you have the reserve fund in case of retirement or the job loss, then you are ready to purchase the property.
Things to consider if you are a buyer
Things to consider if you are a buyer
  • What are your expectations about the income from the investment property? If you are the novice investor and you have plans concerning the investment in affordable housing, you need to calculate the tax benefits and interest. In comparison with the stock investing which leads to the loss of 80% of income due to the volatility, real estate is a long-term asset that is not volatile.
  • Compare the current crisis and the recession in 2008. Many financial experts compare the present situation in the market and the Economic Meltdown which took place in 2008. The crisis caused by the coronavirus pandemic is different from the Great Recession. 

In 2008 the real estate market was performing well and the prices were appreciating steadily. However, the present crisis started when the marked was facing a slowdown during the recent five years. So, the recovery after this recession may be delayed and take a considerable amount of time in the future.

Also, before purchasing any property, you need to prepare for the negotiation with the seller. You need to monitor the prevailing market conditions, check the seller’s background, look at the quality of the house or apartment you are going to purchase.

The homebuyers in the current market

Homebuyers in the current market
Homebuyers in the current market

The investors who are now buying the properties, fall under several categories. The first category is the buyers who were ready to purchase the house or apartment before the pandemic but they were expecting the prices to decrease. These investors have a good understanding of the market, so they are likely to close the deal with the sellers because there is a scope for negotiations. 

The other category is non-resident buyers. Due to the reason that real estate is now considered the best asset class for investment, people will look for opportunities for investing in foreign markets. Currency depreciation and low interest rates are also arguments in favor of real estate investing.

The third category of the home buyers are investors who are applying the flipping approach, so they are searching for distressed properties. The investors from this category are interested in long-term returns, so the current state of the market is not as important for them. 

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