How coronavirus affects real estate investing
What is going to be the effect of the coronavirus on real estate investing and real estate financing? This depends a lot on the damage to the economy and how the housing market develops. You cannot know for sure what the effect will be, but there are expectations that we are happy to share with you.
With project financing, it is important to have sufficient funds available and after the project is realised, there must be demand for the property you have created. In both cases, developments in the economy and consumer confidence are important. We saw this during the credit crisis that started in 2008. Once the economy worsens, financing the purchase of real estate becomes more difficult. Due to a lack of consumer confidence, potential home buyers put plans on hold.
What is the damage to the economy?
Within certain industries, the effects were already being felt since the partial lockdown on 15 March. The hospitality industry was no longer allowed to receive guests, but shopkeepers, theatres and event companies could also feel it right away. With government support, businesses in the affected sectors are being kept alive as much as possible, but once the support falls away, the effects will really become apparent. In the first quarter of 2020, the economy contracted by 1.7%, despite the good months of January and February. Expectations for the second quarter are worse, but compared to other European countries, we are doing well.
Housing market still remains stable
Two months after the partial lockdown, no major negative effects are yet noticeable on the housing market. If economic problems persist for a longer period, falling house prices are not inconceivable. But the fact remains that there is a tightness in the housing market. There are too few houses to meet the high demand. So a further rise in house prices cannot be ruled out.
To invest in real estate now or not?
Especially with projects, it's all about the longer-term view. During the corona crisis, property values may fall, but the tightness in the housing market remains. For example, splitting a property into several flats takes time. In five years' time, there will probably still be a huge shortage of housing, so in the longer term, another sharp rise in house prices is a logical consequence.
Want to know all about project finance and investing funds in this way? We would be happy to catch you up and also talk through scenarios with you right away.
