The times in which we are living will undoubtable leave their mark upon us, albeit in different ways and in different spheres. However, while our ways of life and habits have undergone change, the fundamentals remain the same: people have the same wishes and specific needs and of these owning a home plays an essential role. Nevertheless, the Covid-19 pandemic prompted the governments to take steps to contain the spread of the virus, which inevitably had the effect of changing the cards on the table, including the real estate market, irrespective of location. Therefore, although mounting an in-depth operation seems unnecessarily complex and premature at this juncture, we can at least formulate some hypotheses on the basis of the Asiatic, but specifically Chinese, example. Furthermore, assessing the preceding crises that befell the real-estate market can prove to be very useful and may, perhaps, allow us to reconsider the “pre-Covid departure point”.
Real-estate markets that were already struggling before this pandemic will undoubtedly experience a “more severe relapse”, and markets that previously enjoyed “good health” will recover earlier and more decisively. Thus, a review of our December 2020 forecasts on the Top11- Where to invest, with New York ranking first and no less than 5 American cities in the classification, can constitute an important element upon which to base our post-Covid forecasts. New York, has been the undisputed queen for two years, relinquishing second place only to London, its worthy rival. These are two cities with Alpha++ status, in line with the declaration made by the Globalization and World Cities Research Network. The Big Apple heads this classification, followed by the British capital, by virtue of the level and diversity of private investments in the real-estate sector. However, in terms of investor diversity, measured by investors’ nationality, London takes the lead. Nevertheless, it is natural in the light of the crisis that the real-estate sector went through between 2007 and 2009 that investors should once again be worried. With specific regard to the earlier crisis, the actual decline in real prices that took place in the American counties between 2006 and 2011, can only be explained by the real growth in mortgage indebtedness between 2003 and 2006. In most counties, the prices in 2011 were lower than those recorded in 2006, although this is not true of cities such as New York, Denver and San Francisco, in view of the exponential increase recorded from that year onwards.
Today, the real-estate market has a different aspect with respect to the mid-2000s. In general, it can be said that, given households’ commitment to paying off their debts during the recovery was substantial, real per capita debt rose only in some isolated cases. No wonder, therefore, that states like California and New York, where housing prices are particularly high and even rising, have not experienced the type of the debt growth seen during the boom. Overall, the US housing market today still seems much less risky than it was in the mid-2000. The British real-estate scenario presents a peculiar situation, partly because of Brexit, which has created a certain climate of uncertainty. However, this is not a weak market. In the course of an interview with Forbes, it was noted that most people still intend to sell and buy homes as they had originally planned, regardless of the virus.
In general, one can therefore remain confident, not least because history has repeatedly shown that markets fall in a particular way during an epidemic, but recover quickly enough once the problem is resolved. Reviewing past epidemics to find examples of market recovery, we can note that the most recent outbreak to significantly affect the UK was H1N1, otherwise known as swine flu, which spread to the UK in April 2009. Together with its cost in human lives, the epidemic had a major economic impact. This was demonstrated by the very low number of mortgages recorded in the period and the slowdown in new house building, but at a distance of only one year, i.e. from March 2009 to March 2010, house prices rose 10.1%, and in London by 15.6%. In the wake of the American example, which cut interest rates to support the economy from the severe impact of the Coronavirus, the Bank of England is preparing to take similar action.
China’s experience is an important example, because China faced the problem of Coronavirus before any other state in the world. It is interesting to note that with the dramatic decline in the number of Covid cases, the real estate market rapidly recovered. The data clearly demonstrate this situation: The Chinese real estate portal Sun-Fun CREIS showed that weekly residential sales in Shanghai dropped to an historic low of 62 in the last week of January, but increased to 1,374 in the week starting March 9. Similarly, data from Capital Economics on the number of property sales in 30 major Chinese cities show that 39,455 sales were transacted in the first 17 days of March, compared to 4,578 in the same period of February. In general, the Wire Group as an interested spectator is currently finding a growing and determined interest on the part of investors who, now more than ever, see bricks and mortar as a good store of value. Our advice is that they broaden their horizons by adopting an international prospective so as to identify those markets that are already stronger and ready to overcome a moment of contingent weakness. This is a good time to take advantage of the good business opportunities currently being created.