Investment alternatives are lacking
A study carried out in Germany says that the real estate boom will continue after the short phase of distrust partly thanks to the system of working on lay-off and telework.
A Coronavirus pandemic has paralyzed economic life in Germany and across Europe for weeks. Real estate markets have also not managed to escape coming to a Halt.
We shan’t forget that total real estate investment in Europe reached 85.5 billion euros in the first quarter of 2020, which represents an increase of 52% relating to same period last year, according to the latest data from global real estate consultant CBRE. This was a record performance for the European CRE in the first quarter, surpassing the previous record which dated from the first quarter of 2015.
Temporarily, property prices in Germany will stagnate, Commerzbank research writes in a study, this also serves as an example for other EU countries. The record performance of the first quarter of 2020 that we have seen across Europe serves to highlight the strong appetite of global investors for real estate assets.
The repercussions are expected to be significant only in the short term, with the ability and opportunity to emerge in the medium and long term as the sector begins its recovery. Real estate enters this period of uncertainty in good shape and will continue to perform well in the long run, because there are no investment alternatives.
From a sectoral point of view, it is expected to continue to have a strong demand for commercial and residential assets across the European Union.
The Commerzbank’s study anticipates that by 2021 prices will rise again. The reason for this clear statement is that the main drivers of the housing boom of recent years have not been lost according to the expectations.
Citizens face temporary loss of income
The Commerzbank study also has a message of comfort for workers. Since the inevitable loss of income resulting from the Coronavirus’ crisis is probably less than the fear of the imminent fall in gross domestic product. The authors refer to the experiences of the financial crisis of 2008 and 2009.
In 2009, economic output (GDP) fell by circa 7%, but disposable income per capita decreased by only 2.5% in the fourth quarter of 2008. After that, they remained stable until the end of 2009. Since 2010, they have increased again, this trimming of public debts and high interest scenarios for some of the member states but not for all. This scenario will not be repeated according to the European financial policies that are moving towards a project to encourage the joint economy in the euro area. This will have a common effect, meaning that both Germany and the other member states will be side by side to get out of this crisis caused by the virus, and that after all, it is not a financial crisis, but a health crisis, with consequences on the economy of all member states of the European Union.
House prices only temporarily under pressure
The study states that it is highly likely that house prices in Germany will remain largely stable.
The authors of the study do not want to overestimate the pressure on prices in the housing market caused by the Coronavirus’ crisis. They also point to a long-term trend: already in 2019, the increase in property prices in large cities has declined. This was also a fact in the Portuguese economy, in the last quarter of 2019 it was the first time that there was a downturn of prices compared to the same period of the previous year and the previous quarter. For the first time in a long time, growth rates fell short of average.
ECB's loose monetary policy boosts house prices
Commerzbank's study cites the "loose monetary policy of the ECB and other central banks" as an important factor in the recovery of housing markets. ECB President Christine Lagarde stressed that "there are no limits to our commitment to the euro." Similarly, the U.S. Federal Reserve (Fed) has adjusted its monetary policy.
According to the authors, the trillions of central bank aid lead to "investments in real estate becoming increasingly attractive." In addition, currently exceptionally low construction interest rates make real estate affordable. The study refers to the so-called accessibility index. So, buying a house is cheaper than ever in the past, and this will not change in the medium term.
Text: Paulo Lopes