The coronavirus outbreak has infected over 1 million people globally, the result of which businesses have been left counting major costs.
The economic impact of the spread has been felt across almost every sector including:
- Global shares- Shifts in stock markets have affected investments in individual savings accounts or pensions. While it is not known how much more of a plunge global economies will take, central banks are cutting interest rates in a bid to encourage more borrowing and spending.
- Travel- Governments have put restrictions on the very thing that fuels the travel industry- movement. This has forced airlines to cut flights and tourists to cancel business trips and holidays, ultimately making travel among the hardest hit sectors.
- Retail- Fear of contracting the virus is forcing people to stay at home, a resolution that is devastatingly impacting hotels, restaurants, and other small businesses. If anything, restaurants and other non-essential shops in some countries have been ordered to shut down completely.
Not the same can be said of supermarkets and online delivery stores as these have reported a huge spike in demand as consumers stockpile products such as toilet paper, antiseptics, food, and other essential goods.
- Manufacturing- China, currently the world’s largest exporter of goods recorded the first coronavirus case and went on to be one of the sickest countries. Restrictions have had an effect on the supply chains of huge companies such as carmaker Nissan and industrial equipment manufacturer JCB. Industrial production, sales, and investments all went down within the first two months of 2020.
- Investment vehicles- During a crisis, investors will often choose to go with less risky investments such as gold. But even the price of gold went down briefly in March as a result of investors being afraid of a global recession.
More has yet to be drawn on the impact of the coronavirus on businesses as little is known on how much more disrupting the spread will be.
Impact on real estate
Real estate has not been left out of the list of areas that have been affected by the coronavirus. The real estate industry is as extensive as the outbreak. Different sectors and markets are feeling the impact on a different scale. Restaurants, hotels,and bars and other entertainment retail have been hit hardest followed by retail and housing.
If building supplies are not being interrupted, then workers are being kept home by quarantines, business shutdowns, and curfews. Should companies continue to lay off employees, the rate of consumer spending will continue to shrink further facilitating the downward spiral of economic activity.
The tourism industry
Contagion concerns have directly impacted the tourism industry with people putting a damper on travel. Furthermore, it is highly unlikely that anyone will want to throw money into traveling at a time when many are encountering financial problems.
Housing and homebuilding
Home Shoppers are staying home and homebuilders are feeling the impact firsthand. Also, the supply of construction materials is being disrupted as China, which supplies more than 30% of building materials, has slowed down production by a certain percentage.
Due to this and other factors, lending terms and conditions for non-conforming mortgage loans have grown tighter. Self-employed buyers or those with a debt-to-income ratio higher than 43%-45% are facing a lot of difficulty acquiring mortgages.
Even more worrying is the effect that the stock market decline will have on customer spending. Anyone that has lost a lot of their monetary wealth will spend less on non-obligatory items, and those nearing retirement may be radically changing their spending plans. If they had been planning to buy a home, they may have to put that off until after the effects of the virus have passed.
The rental apartment industry
People have not been working as a result of most businesses closing up. Without a viable source of income, it has become difficult for tenants to meet the current month’s rent, a circumstance that landlords are being forced to contend with. The most likely outcome is to turn to retention, which means giving tenants some clemence in the near term. This will result in a downward pressure where property owners will ask their lenders/ creditors for forbearance as well.
Unlike restaurants and stores which are unable to generate their normal revenue, the long-term outlook for rental property is still bright. Lease renewal rates were steady and apartment construction was in full motion before the pandemic, hence it has a little more ground to give.
The office sector
Social distancing has not made it any easier for the office sector to operate. However, one would expect that everything will go back to normal at the office once the health crisis has subsided. The more important determinant of office space demand, however, is sheer job growth. Should the recession extend past the expected limit, then the demand for new office lease contracts will be low. But if it’s a deep-but-brief recession, then demand for office space should go back to normal as the economy bounces back.
What lies ahead for property ownership?
The problematic thing with this economic disruption is its effects on both demand and supply.
On the demand side, it all depends on the speed with which the outbreak can be contained. Consumers will be free to start spending again once the number of people infected with the coronavirus flattens out and begins to decrease.
It may take a while for the supply side to restore, especially if the pandemic is not contained uniformly across the affected countries.
When all’s said and done, real estate investors are finding opportunity in this time of crisis to pick up assets at low prices and with decreased financing rates. Even so, any such purchase must always be executed with a keen eye, a splash of patience, and a thorough evaluation.