Restrictions associated with COVID-19 pandas have negatively affected a number of industries, but paradoxically, they are boosting real estate in favor of rising prices. During the last financial crisis in 2008 after the collapse of Lehman Brothers, the real estate market reacted with a slump and the global government wrote off more than 10 percent of its value.
Only the current situation is different. As public protection restrictions have been limited, spending on spending on travel, various cultural events, as well as mass sports activities and a range of other activities, the public’s attention, according to The Economist magazine, is focused on the possibility of investing in real estate. Together with the expansionary policy of central banks and other measures in some countries, such as external housing subsidies, the reduction / deferral of tax payments may be one of the reasons that helps prices upwards.
In the US, for example, real estate prices rose during the worst months after the outbreak of pandemics than during the best months before the outbreak of the last financial crisis. According to The Economist, real estate prices in the G7 countries rose by 5 percent in the second quarter of 2020. In Germany, they increased by 11 percent.
The call for mortgages is due to such a better year, while the European Central Bank has kept the annual rate at 0 since March 2016 and did not change it even after the crisis broke out, the US Federal Reserve reduced the rate from 1.50 and 1.75 to 0 and 0.25 percent and the Bank of England from 0.75 to 0.1 percent. The decline in interest rates in individual countries was also caused by a lower year of mortgages, which, despite local tightening conditions, attracts the public’s interest in owning a home or investing in other real estate.
The fact that the pandemic brought with it the need and birth of work from the house, ie the so-called home office, was a factor in the growth of interest in buying real estate. Along with the fact that people last more and more time in their apartment or house, their demands for comfort increase, of course.
The hope of many real estate investors that the advent of the coronary crisis will push real estate prices down and they will be able to afford to invest on suitable terms, has long since faded. Of course, you have to take into account the fact that real estate prices can be included among the reverse economic factor, which means that the economic decline abrades with a certain lower. It is therefore likely that the decline in income and prices is yet to come. For?
Along with rising prices, the risk of real estate bubbles increases. In addition, unemployment has risen and job prospects for the future in the current period of uncertainty are thus irregular. According to a study by the UBS Global Real Estate Bubble Index from the end of 2020, analyzing 25 large cities around the world, real estate prices are significantly overvalued and in half of the cities surveyed. A study by UBS Global Wealth Management shows that the euro area is the region with the largest housing markets. Frankfurt and Munich took the first place. Behind them Toronto, Hong Kong, Pa, Amsterdam and Zurich (by contrast, undervalued real estate prices can be found in Chicago).
Graph: UBS Global Real Estate Bubble Index Overview of overvalued and undervalued property prices in 25 cities around the world (year 2020)
In the last three quarters, the average growth of prices adjusted for inflation in the analyzed cities accelerated, which is unlikely to be sustainable due to the rise in work from home. The decline in the need for residents to be located right in the city center, this may be in the long run, especially with regard to the assumption of further waves of the pandemic as a result of pressure on property prices downwards.
Olvia Lacenov
In the world of financial markets, she started working in the sales department, where she dealt with clients trading through CFD certificates. She was particularly fascinated by the world of stocks and commodities, which she wanted to focus on in more detail. She spent a year and a half writing professional articles on this topic in the Hospodářské noviny editorial office. He is currently engaged in analytical activities, where he focuses mainly on the commodity market and the development of precious metals, which in physical form he considers to be the best form of collateral against uncertainties.
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