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Corona Virus: How does the Real Estate Market Change?

Will Corona Virus block the real estate industry?

The pandemic could result in the loss of millions of real estate transactions despite historically low rates.

Corona Virus How does the Real Estate Market Change

The economy of our country, already fragile for some time, is now facing the emergency caused by The Corona virus that has changed social relations, habits and activities. A report by Standard & Poor's shows that the consequences of the pandemic will lead to a reduction in growth estimates for 2020. Many sectors will experience a major collapse but what should be expected from the housing market? Will there be a new stagnation, as happened in the years before the lively 2019, or will the sector resume with momentum because the brick will be considered a safe haven? To answer these questions, we looked at specific aspects such as:
  • forecasts of consultancies;
  • what investors and banks will do;
  • where real estate will guide families in the future.

The effects of Corona virus on the unclean market: what to expect?

In the fourth quarter of 2019 we saw a 0.3% fall in GDP and a continued stagnation in property prices, accompanied, in some areas, by significant declines. The country already showed that it was on the brink of recession, but the further crisis triggered by the virus, which today mainly involves tourism, could also affect the property market. According to Nomisma, in fact, in 2020 there will be a lower number of trades than the previous year, which can range from 50,000 to 100,000 units. An inescapable fact that can be confirmed in a total or only partial way but certainly not disavowed, and this is easily explained. Unfortunately, Corona virus could lead to an increase in the unemployment rate and consequently a greater impoverishment of investors. It is immediate to understand that those who lose their jobs are unlikely to commit to buying a property, even if it had been planned for some time. However, the Observatory on the Italian real estate market Nomisma predicts that there will not be a decrease in the cost of houses, just as happened in 2008 with the bankruptcy of Lehman Brothers.

Waiting for a reduction in trades

However, in order to get a more complete picture, consider the possible scenarios that could occur depending on the severity of the recession. In the residential sales market, turnover in 2020 could fall from 9 billion to 22.1 billion compared to 2019 and since everything suggests that the crisis will not be short, it is estimated that in three years the loss could be 122 billion. Corporate revenue is expected to lose between 2.6 billion and 5.8 billion. The conditions take into account macroeconomic variables that will occur with serious consequences in the short and long term. While in the months leading up to the timid resurgence of trades had been buoyed by the fall in interest rates, the future is now negative, although it is difficult to speculate how much it will be. In addition to a likely impoverishment on the part of those who will lose employment, it must be considered that many who thought they were investing to put the property on income will not do so in order to increase savings and have liquidity for any economic problems. In addition to this, there is a third that concerns banks: lenders could make it more difficult to obtain a mortgage because they are still burdened with the suffering accumulated in the past, they will not want to take new risks by granting mortgage guarantees that do not allow them to defend themselves adequately from bad payers. There are therefore fears of negative backlash with falling transactions and worsening changes that may reflect an even more negative trend than feared. To understand what the real trend will be beyond forecasts, we have to wait until the emerging period ends. The real estate sector, in fact, has no immediate impact and only in the medium or long term will you be able to understand which direction you are going. For more vibrant cities such as Milan, stalls will be inevitable, but then, after a reduction in transactions, a restart is expected, albeit months later. Milan will be among the first companies to recover: confirming this, it is enough to take a look not so much at the rents, which are practically stationary and register only a small increase of 0.3%, but to the demand for leases, increased by 1.9%, to which supply is not able to respond. The slowdown in sales is also seen in major cities such as Florence with a -9.6%, Rome -8%, Naples -5% and Genoa -3.9%.

Where real estate will guide families in the future

At the end of the crisis, one of the sectors that will be most involved will be real estate. It is logical to assume that families, especially if many, will be oriented to choose new types of real estate. This is especially after the measures taken by the Government to prevent the spread of the virus, due to which households have spent weeks in often very small dwellings where the division of spaces has become a problem to allow smart-working to parents and online teaching to their children. The quality of the property will be a determining factor in the choice, this feature, which will make attractive some properties rather than others, is confirmed by Real Estate Scenarios: rather than the purchase of an SUV, in the future you will choose the house with an extra compartment. After this general debate, however, we would like to say that, in today's situation, the house can still be considered a safe haven. This is due to many factors including the characteristics that the bond sector has taken on, traditionally favoured by those looking for a fixed income, which today is saturated and with negative returns. To this must be added a further consideration: although it is true that selling a property, if liquidity is needed, can take a long time if you are not willing to sell, the volatility of the stock market carries very high risks with losses of up to 30%. This is a negative record that the much more stable housing market has never recorded.

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