Could the Coronavirus Affect European Real Estate Investing?
Whether we like it or not, coronavirus is one of the top concerns at the present time and one question arising is whether it will have any significant impact on real estate investing. I’m Ofir Eyal Bar, a real estate investor, and I would like to talk about this controversial topic, in order to clarify some of the misinformation currently spread by the media.
Briefings on the coronavirus
First encountered in Wuhan, China, back in December 2019, the new coronavirus (or Covid-19, as it has been named by the World Health Organization) had infected around 87,000 until the time of writing. Almost 80,000 of the cases are located in mainland China, but as of lately, South Korea, Italy, and Iran had shown concerning increases in their reported cases.
Statistics show that the current death rate is 3.4%, with 2979 people unable to survive the virus. Specialists claim that the virus is fatal to the elderly and people with pre-conditions like diabetes, chronic diseases, or weak immune system. For more than 80% of the people infected, though, getting infected is like contracting flu. It should not be ignored the virus is contagious, being transmitted through direct contact or droplets.
The power of fear
Fear had emerged around people around the world during the past few weeks, as the virus is now spreading fast outside China. Is that fear motivated by solid facts? Let’s take a look at some numbers. Since 2020 started, more than 80,000 had died worldwide due to the flu. That number is more than 20 times higher than the death rate caused by Covid-19. Even though there is greater contagion risk, proper hygiene can prevent the spread.
This is a new virus and people fear the unknown. We’re already comfortable living with the flu and it is possible that we may need to do the same with Covid-19, given how easily it can spread from human to human. However, the economic impact and real estate consequences must not be taken out of the equation.
Economic impact not to be ignored
Consumption has a large share of GDP in most countries and since fear is already affecting economic activity, analysts the global economy could face a contraction period, at least in the first half of 2020. As long as the virus continues to be the main highlight, people will be reluctant to spend.
In terms of real estate implications, we did not have any economic downturn since 2008 and as a result, prices had grown exponentially since then. If real estate activity starts to shrink, we could see valuations ease, at least during the H1 of 2020. This won’t be good news for real estate investors, as their profit margin will be smaller and their commitment to invest in new places will change. All these factors can have a compounding effect, but will it last or will it be short-lived?
Short-term vs. long-term implications
There’s no doubt the coronavirus will impact the global economy at least for a few months, but as people will get accustomed to it, the long-term horizon depends mainly on governments’ ability to contain the spread. This is an issue that does not get solved overnight, but if it will extend beyond the middle of the year, we should expect to see greater consequences.
Still, it’s encouraging to see China showing signs it managed to contain the spread, which raises the confidence for other countries to do the same. The rest of the world should have an easier task, given that cities are much smaller and the virus can be contained in restricted areas, with proper measures in place.
Based on the numbers we’ve highlighted, the coronavirus is not the kind of virus that will end the world. However, people are part of the market and how they perceive this issue will be key in determining the economic impact on the real estate industry. Real estate sales could ease, as long as the fear persists, but any sign of containment can reserve the tide and start to build up confidence once again. It mainly depends on us whether this will turn out to be a great issue or something that lasts not more than a few months.