Global Market Update
The COVID-19 pandemic brought with it unprecedented economic and social disruption, resulting in a recession for most countries this year. Most respected economists are projecting sharp economic contraction due to the varying application of quarantine, and the recovery is expected to be sharp as well, whether V-shaped, U-shaped or even W-shaped. This outlook is due to the cause of recession, which is not fundamental or economic, but rather public health. In short, the demand for products and services is just stalled and will resume once trading and traveling are allowed.
The real estate industry has always been viewed as a solid brick-and-mortar and high touch market. This nature gave way to accepting technology and digital solutions, and thus the pandemic became an innovation booster for real estate. Leading Real Estate Companies of the World® (LeadingRE), with more than 135,000 agents in 70 countries, immediately reached out to its members on the outset of the stay-at-home regime. For this market update, LeadingRE shall use the “SCORES” framework, which stands for Status-Challenges-Opportunities-Responses.
Markets all over the world have been steadily relaxing the stay-at-home / quarantine / lockdown policies to open up business and travel. While this change may still be controversial in some areas, in a handful of markets like Wuhan, China and South Korea, they are already aggressively dealing with the “second wave” of outbreak. A growing number of countries and markets are more adamant in allowing the flow of people and goods given that the recovery rate from the virus is high and there are handful of promising remedies.
Due to the disrupted markets, the main challenge now is how to pick up the pieces. Weeks of movement and travel restrictions ground most real estate transactions to a halt. Tourism-driven markets were hit the hardest. Nonetheless, there are several brokerage and agency companies that rose to the challenge and seized the opportunities in a down market.
In terms of opportunities, savvy companies never dropped the ball so to speak. Some LeadingRE members continued to hand-hold their clients and many were active in community outreach programs. Others continued with virtual meetings, tours, PR events and online auctions, like Barfoot and Thompson in Auckland, New Zealand. Our member in Switzerland, Doris Bader Immobilien – Bader Immobilien Luzern AG, even utilized a robot in assisting clients on home viewing. Digital-ready companies like IQI, based in Dubai, UAE with operations in a number of countries, cashed in on their Chinese-focused online platform, with its partnership with Juwai. Some companies in Hong Kong and Japan are benefiting from the bargain-hunting mode of their high net worth investors, even in the luxury category.
The key response of real estate companies during these months of lockdown is digital transformation. World governments, on the other hand, have been enacting stimulus packages, and central banks are using their monetary levers to encourage spending, support families and businesses, and prop up economies. There are even talks of zero or even negative interest rates. Needless to say, the volatility is felt in equities and bond markets as well. In these uncertain times, a segment of buyers and investors alike is more comfortable with real estate as a hedge against other investment instruments. In some markets, real estate is an essential industry and will always receive preferential policies. It is up to real estate practitioners to identify and seize these opportunities in their local and regional markets.
Asia Pacific Scores
The status of Asia Pacific (APAC) region, being the ground zero of the pandemic, is relatively ahead. China, Hong Kong, Japan, New Zealand, Australia, Singapore, South Korea, Taiwan and Thailand already loosened their restrictions to start the “new normal” distancing, while the rest of the countries are following suit. According to One Global Property Services, our member operating in Hong Kong, “big” real estate events of between 100-150 participants have started. They had more than 10 transactions right after the lockdown and prices are holding up, with a slight dip in some cases.
The challenge in the property market remains to be the movement and travel restrictions across countries. These restrictions have impacted demand, especially in the tourism-driven markets, where tens of millions of tourists crisscross the APAC region. It is comforting to know that some countries are steadily easing travel restrictions. China signaled to open flights to selected capitals of other countries, provided they have mutual health protocols.
The key opportunity in APAC is digitalization. LeadingRE members with robust online platforms and even auctions have converted sales even during the lockdown. As a result of the pandemic, more and more companies are embracing digital and online solutions to blend with the traditional real estate sales process. Another opportunity is bargain hunting, not only from Chinese buyers, but also from high net worth investors across the region.
In terms of responses, governments in Asia have been announcing stimulus packages to support families, and businesses, as well as public health and the economy in general. Leading the way is Japan with an initial economic stimulus worth approximately USD 1 trillion, and on May 27, it was announced this will be doubled to a total of USD 2 trillion. At the company level, the responses of some LeadingRE members include virtual meetings and tours, consistent messaging to clients and support to the community.
Europe-Middle East-Africa Scores
The status of most European markets loosened up with “conditional plan” in the UK, “emergency brake if needed” in Germany, “red zones” in France, and a mixture of precautionary measures in phases, such as limiting the number of people in group gatherings. In this regard, EMEA countries are almost at pace with the APAC region in terms of relaxation of restrictions and the road to recovery. More importantly, our member in Zurich, Switzerland, Ginesta Immobilien, confirmed that their stock market is back to pre-COVID level, underscoring the rebound in business confidence.
The main challenge monitored in EMEA markets is the brick-and-mortar mentality in the sales process, and notarization of hard copies has been delaying closing. It appears there is ample room for digitalization in this region. For the tourist-driven markets, people are anticipating the eventual opening of airports that would bring in both delayed and fresh demand for real estate. Another challenge is the sizeable number of empty “Airbnb” units across markets in Europe, though the flip side of that is the possibility of selling these units instead.
On the opportunity front, LeadingRE members reported innovations such as increased social media presence and even using a robot in inspections in Switzerland as mentioned before. More importantly, as soon as the restrictions were lifted, real estate deals were being transacted. This observation reinforces the thinking that the lockdown created pent up demand for property. LeadingRE member in Berlin, Germany, Allgemeiner Grund & Boden Fundus shared that commercial transactions were steadily moving even during the lockdown, and when offices were opened, they were able to notarize a considerable sale. In Spain, to support the tourism market, beach operations are introducing “grids” to maintain distancing while enjoying the sun, the sea and the sand.
Like most countries, European Union leaders responded to the pandemic with a proposal of 1 trillion-Euro recovery plan, although analysts are looking at a figure closer to 750 billion Euros being approved. The European Commission on the other hand is looking at 500 billion Euros worth of grants. Moreover, the pronouncement of the European Central Bank president is to further increase the Pandemic Emergency Purchase program to 1,350 billion Euros. For its part, Germany approved an 822 billion-Euro spending package. Together, all of these financial stimuli packages add up to 3.9 trillion Euros. At the corporate level, more real estate companies are looking for global network opportunities and accelerated digitalization of real estate business.
Latin America and the Caribbean Scores
While the pandemic came later in Latin America and the Caribbean (LAC) countries, some countries have already started easing restrictions like Chile, Costa Rica, Ecuador, Guatemala, Panama, Paraguay, Peru, and the rest are following suit at a slower rate. While Brazil’s president was in favor of relaxing the restrictions sooner, the high number of infected citizens is becoming a flash point in the region.
The main challenge in the region is that several countries are relying on tourism and oil industries, which have been adversely affected. With the production cut agreed by the Organization of Petroleum Exporting Countries (OPEC), oil price is expected to stabilize and will benefit oil producing countries.
Given the seemingly bleak picture, most LeadingRE members in the LAC region have focused on the opportunities like virtual tours and online meetings. They made use of the lockdown period to continue communicating with and training their agents.
In terms of responses, most countries in the LAC region largely support health and labor. At the corporate level, LeadingRE members are generating inquiries through online platforms and are cautiously optimistic that tourists will still flock to LAC countries due to their proximity to the United States. Most members are already preparing for better listings in the eventual recovery.
As of the writing of this update, Canada sees fewer than 1,000 new cases for three consecutive days. Most provinces in Canada have been relaxing their restrictions, while Quebec has been implementing stricter measures since it accounts for over half of the cases in the country. The Canadian Federation of Independent Business welcomes the “careful, phased approach to the reopening of the economy.”
The main challenge encountered is that transactions were delayed when the offices were closed in most of the provinces of Canada. While there are talks of softening housing prices, the Global News outlet reported that home prices in the Greater Toronto Area (GTA) are up slightly from this time last year. According to the report: “The modest increase was seen both in the Toronto-area 905 suburbs and also in the 416-area code. In the 416, condo prices were up 1.8 per cent in the first two weeks of May, compared to the same period in 2019, and detached houses were up 2.6 per cent, though only 198 properties in that category were sold. In GTA 905 communities like Peel and Durham, condo prices were up 3.4 per cent and detached houses were up 0.9 per cent. However, far fewer homes are being bought and sold: the GTA had only 2,005 residential properties sold in the first two weeks of May, as opposed to 3,477 in the first two weeks of February.”
The key opportunity lies on the pent-up demand after the stay home regime, especially for properties away from the cities. More importantly, with the mandated lower interest rates, some home sellers are receiving multiple offers.
The main corporate response by real estate agencies is that digitalization accelerated in recent weeks. More importantly, companies are preparing for the recovery since inquiries have been picking up lately. As for the government, a stimulus package worth USD 75 billion has been approved.
United States Scores
In the United States, the pandemic abruptly halted in February the longest economic expansion in history at 128 months. Reacting to the COVID-19 outbreak, there was a divide on the issue of lockdown in various cities and states. After weeks of mixed stay-at-home policies, most states have been steadily opening up. More importantly, the closely watched jobless claims have tapered off since peaking at almost 7 million in late March. They dipped to 1.88 million in the seven days ending May 30 from the prior week’s total of 2.13 million. Furthermore, the continuing jobless claims continued to stabilize after a historic surge; this indicator dropped to 19.3 million by May 23 from the pandemic peak of nearly 23 million.
In the past weeks, the main challenge in the US is the checkered pandemic policies by different states and cities. For realtors, property showings were almost non-existent in the past weeks. Of course, there is a new challenge now with the waves of anti-racism rallies, but that is a separate story altogether.
Opportunity-wise, there has been a surge in demand for suburbs and even rural areas in recent weeks. The theme has been generally “escape the city.” There was also an uptick in interest for waterfront properties according to our member from Signature Properties Group Inc. in Georgia. In addition, our member Arizona Best Real Estate observed that there are more people attending Zoom meetings than previous in-person sales meetings.
A total of USD 2.8 trillion spending package has been approved by the government, directly supporting families and businesses. Interest rates and money supply have been used as well to encourage spending. Corporate debts are now being purchased to further support businesses. Real estate is considered an essential industry in many states. Webinars are quickly accepted and adapted. As a response to health concerns, viewings are one at a time, with additional safety precautions also being implemented. These factors give a reason to be optimistic for the second half of the year.
The pandemic compelled most if not all governments to use all their fiscal and monetary levers to support markets and economies. Some of these policies are directly beneficial to local real estate markets and businesses. We should be ahead of the curve in optimizing these opportunities.
In addition, we need to reevaluate the tastes and preferences of buyers and reassure both buyers and sellers that their health and safety is paramount. Making all parties comfortable with digitalization and accepting deals, closings and payments online are likewise crucial in making deals flow.
Now more than ever, real estate companies have adjusted to the new normal and are embracing digitalization. It is high time to re-imagine how we conduct real estate business at the local and global level.