Effect of Covid-19 on the Real Estate Market
Last year, 2020 had several historic events that directly impacted the economic prowess and the productivity of countless industries globally. As the effects of Covid-19 disruption are felt in almost all industries in several countries of the world, the real estate marketplace also had an even share of the varying consequences of the pandemic. The Covid-19 outbreak had several notable economic impacts on the asset, demand and value of the real estate industry. The level of impact of the pandemic, however, varied depending on the region and asset class, as the major concern for most executives in the industry centers around how to preserve value and liquidity.
The Coronavirus pandemic has left an imprint in the real estate market due to lockdown rules introduced in segments of 2020 and continuing in 2021. These changes are experienced by parties such as property buyers, independent sellers, housebuilders, estate agents, property listing sites, conveyancing practitioners, and mortgage advisers. It will be quite a monumental task to highlight the COVID impact from the standpoint of all the above-mentioned parties; we will therefore capture the effects of Covid-19 on the real estate industry from the perspective of property buyers. What can property buyers learn from the changes triggered by Covid-19? This is the core question we are hoping to address via this piece.
The effects of COVID-19 on property buyers
The housing market is critical to the economic well-being of any given nation. The current pandemic has impacted this critical industry and here are some effects from the viewpoint of property buyers.
Property Demand: Covid-19 brought about several changes in the real estate industry from a property demand perspective. Interestingly, for markets like the UK, there was an increase in demand for properties outside the capital as the desire for more spacious homes was instrumental. Those who departed from London purchased over 73,950 homes in 2020. The areas that saw the most property demand from exiting Londoners are Sevenoaks, Windsor, Maidenhead, and Oxford. Covid-19 also contributed to property market-friendly policies like the stamp duty holiday introduced by the UK government on 8th July 2020. This allows property buyers in England and Northern Ireland to save on stamp duty land tax on homes valued at up to £500, 000. People who purchase qualifying properties on or before 31 March 2021 can enjoy the tax holiday which translates to savings of up to £15, 000. These policy changes triggered by COVID have contributed to rising property demand as preliminary data from the HM Revenue and Customs (HMRC) in November 2020 reveals a 19% year-on-year increase in property sales. This demand may emerge from buyers that are exploring purchasing additional investment properties or moving into a much bigger family home. Other markets like the USA saw an increase in demand largely fueled by the Millennial first-time home-buying wave and record-low mortgage rates offered by lenders.
House Prices: Demand and supply are quite crucial in determining the prices of properties sold. The introduction of the stamp duty holiday in the UK triggered the demand and sale of properties as some transactions were chain in nature. Some sellers withdrew their property listings as a result of COVID and the lockdown rules. This reluctance to sell and concerns to buy was transformed by a potential stamp duty holiday. An increase in demand as noted in the previous point has contributed to a rise in prices in markets such as the UK. In December 2020, the Nationwide house price index noted a six-year high of 7.3%, up from 6.5% in the month of November. Based on the UK Land Registry, property prices in the UK increased by 0.7% month-on-month and 5.4% year-on-year in October. This could vary across a variety of markets but Covid-19 has triggered policies that have inspired more property transactions that have invariably contributed to a marginal rise in prices. There has been a slowdown in house prices in markets like the United States with a year-over-year increase in median prices was at 1.1% in early May 2020. One of the reasons for the marginal price increase has been the rise of the listing of more affordable properties than their luxury counterparts.
Structural Preferences: Movement restrictions and the rise of remote working has been a common feature in a world dealing with a pandemic. There have been increased searches on property listing sites like Rightmove for homes away from city centres and towns that boast of a garden and generous space. A spacious property will allow owners to set up a remote office and allow for the use of a garden for exercising or for some airy relaxation.
Average Time to Agree to a Sale: Purchasing a residential or investment property can take a couple of months from the research to the sale stage. Interestingly, Covid-19 has led to policies like the introduction of stamp duty holiday which has reduced the average time to agree a sale. The property listing site Rightmove, reveals that the average time to agree to a sale has been shortened in recent months. It took about 52 days to agree to a sale in November 2020 as compared to 67 days at the same time last year. On the contrary, research from Mansion Global highlights that it takes 14% longer to sell a home in comparison to 2019. The findings revealed that it took an average of 127 days to complete a purchase of a home in 2019 in comparison to 144 in 2020. Factors such as the location of the properties, sample size, and period end of the research could explain the differing figures between Rightmove and Mansion Global. Overall, the pandemic has impacted the number of days it will take to complete the purchase of your next property.
Increase in the adoption of electronic verification applications: Compliance applications will be used at a higher rate to ensure proper verification of buyers is carried out in line with Anti Money Laundering (AML) regulations. This has led to the expansion of one of the leaders in this space, SmartSearch into the United States market. HM Land Registry has advised estate agents and property sellers to be more alert to spot mortgage fraud during this pandemic. The surge in suspected fraud as a result of the difficulties caused by COVID will likely lead to the adoption of verification tools to ensure your identity is protected, the transaction is secure, and onboarding seamless.
Increase in property viewing considerations: The spread of the new variant of the virus and further government restrictions has led to more factors to be considered when planning to view a property. Firstly, the essence of online viewing is more prominent during these times than in previous periods. More hygiene awareness and standards are now required with the regular washing of hands in the showroom, maintaining a 2m distance whilst viewing, and minimising contacts with door handles and other property surfaces. Additionally, buyers are encouraged to have their own viewing kits in preparation for going to a showroom or visiting a property of interest. Some of the things to consider including in your property viewing kit are a face mask, hand sanitiser, disposable gloves, a bottle of water, a viewing checklist, and a notepad with a pen.
Despite the challenges presented by Covid-19, the real estate industry is thriving in most markets and potential buyers are re-evaluating their core property preferences and navigating a digitalised and hygiene-centred buying process.