The coronavirus pandemic is not only having an impact on people’s everyday lives and working environments. The effect on the economy is also enormous. Some sectors have been unable to generate any revenue for many months. These include the catering industry and the entire events sector. Corona has also had an impact on prices. This affects not only consumer prices, but also real estate prices. These have risen significantly in the last year and a half. Larger cities and structurally strong regions are particularly affected. However, a significant price increase can also be observed in rural areas. The impact on property prices varies greatly. It depends on the type of property, the location and the region in which the property is situated.
What effects of the coronavirus pandemic can be seen in real estate prices so far?
Many buyers and sellers of real estate have the impression that property prices are rising despite coronavirus. Experts have established that the effects of the corona crisis vary greatly. They depend on the intended use of the property. Whether it is a residential, commercial or vacation property plays a role here. Prices have not plummeted dramatically. There were predictions that the real estate market would collapse. However, this has not yet come true.
Rising demand for real estate
One year after the start of the coronavirus crisis, there has been less of a slump than an increase in demand for real estate prices. This is partly due to the fact that the state is paying transfer payments to sectors that have been particularly affected by the pandemic. These transfer payments include short-time working allowance. Affected sectors have also received emergency aid to cushion the financial impact of the pandemic.
Real estate is crisis and inflation-proof
Real estate is one of the financial investments that are crisis and inflation-proof. This may be one of the reasons why demand for real estate has risen since the start of the coronavirus pandemic. Not everyone has suffered financial losses as a result of the coronavirus pandemic. Those who were able to work during the crisis did not have as many opportunities to spend their money. As a result, savings grew last year. Savers are looking for alternatives to traditional savings investments because these no longer promise any real returns. Shares are only considered a safe investment to a limited extent. Life insurance policies are also no longer considered really lucrative due to the low interest rates. The desire to finance a property can be linked to this development. This could explain the rising demand.
Low level of building interest rates
Building loans have had very low interest rates for years. This is due to the European Central Bank’s low interest rate policy. These do not only affect savings deposits. Building interest rates have also succumbed to the pressure. They are at a historic low. Experts assume that the low interest rates will not change in the coming years. The coronavirus pandemic should have no impact on building interest rates in the medium term. However, it is difficult to make precise forecasts. It is possible that there will be a slump in some areas in the medium or long term. These could be concentrated in individual regions or specific economic sectors. As a result, customers’ liquidity would be lower, which could affect their willingness to pay. This could have an impact on the real estate market.
Residential real estate: The development of real estate prices for single-family homes and co. due to Corona
Is coronavirus causing property prices to rise or are there other reasons for the higher prices in some regions? The first thing to find out is whether property prices have risen at all since the start of the coronavirus pandemic: Residential property prices have been stable since the start of 2021. In some regions, especially in larger cities and structurally strong areas, there has been an increase in property prices. On the other hand, demand has fallen during the lockdown. However, this lower interest is now being balanced out again: Demand for real estate has now risen again. Demand is exceeding the interest of property buyers before the pandemic.
Real estate prices have risen
The stronger demand for real estate compared to the time of the lockdown has resulted in a rise in prices. Experts speak of a value of 7.8 percent. The comparison is made with prices from 2019, i.e. before the lockdown. Real estate prices rose further in the first nine months of 2020, with a price increase of around 5.8% compared to 2019.
Demand for real estate near larger cities
Demand for residential properties varies greatly from region to region. Since the start of the coronavirus pandemic, demand for real estate has increased, particularly in the areas surrounding larger cities. The terms “living in the countryside” and “suburbanization” have become familiar in this context. In addition, houses and apartments that are suitable for working from home have gained in importance. It can be assumed that working from home will continue to be more important after the end of the pandemic than in previous years. Many employees will work from home at least part of the time. Apartments and houses that make this possible are very likely to be in high demand in the future. However, it is not possible to make a definitive statement on this at present. Property prices in cities and outlying areas are currently stable. The prediction that the real estate bubble could burst has not yet come true.
Commercial real estate: This is what the commercial real estate market looks like due to Corona
The commercial real estate market differs from the residential real estate market in a number of areas. Property prices on the commercial real estate market are therefore assessed separately from the residential market. Here, too, the question arises as to how Corona has affected prices in 2021. Are property prices rising or is the market stable?
Little price movement on the commercial real estate market
Prices for the purchase of commercial real estate are currently considered stable. Demand has fallen in some areas due to coronavirus. This applies to properties for the hotel, restaurant and retail sectors. These sectors were and are particularly affected by the coronavirus pandemic, as there have been months of closures. There was also a temporary decline in the rental of retail space. This area stabilized again by April 2021. It is at the same level as the previous year. The easing of measures to contain the pandemic is having an effect with the higher demand.
Strong demand for logistics and industrial properties
The logistics and e-commerce sectors have experienced an upswing due to the measures taken to contain the pandemic. Real estate for pharmaceutical logistics and food retail is also in such high demand that there is currently not enough on offer for all prospective buyers. This has led to an increase in purchase and rental prices for properties.
Decline in lettings for office properties
The market for office properties declined in 2020. This can also be attributed to the coronavirus crisis. Many companies have shifted their employees’ work to home offices. There was a government order for this at times. Companies that wanted to rent office space have canceled this or postponed it indefinitely. Compared to the time before the pandemic, a trend reversal can be observed here, as renting office space was booming before the pandemic. Prices for renting office properties are stable, with a slight upward trend in some cities. However, it should be noted that the office real estate market is heavily dependent on macroeconomic developments. There is currently no sign of an upturn due to the lockdown.
Vacation properties: The real estate prices for vacation homes due to Corona
Property prices for vacation homes have risen sharply in connection with Corona. Many customers are looking for accommodation for their vacation that is further away from the tourist centers. This makes it possible to spend your vacation in accordance with the rules for containing the pandemic. Once the measures are over, idyllically located vacation homes are easy to rent out. Prices are very high, especially in popular vacation regions. The increase can be attributed to the effects of the pandemic. A slump in prices is not to be expected. For many prospective buyers, the high prices are an obstacle, meaning that investments are being postponed or not made at all.
Is there a real estate bubble and is it at risk of bursting due to coronavirus?
Is it to be feared that real estate prices will develop in such a way that the bubble will burst in 2021 due to coronavirus? This was predicted by some experts at the beginning of the crisis.
Demand exceeds supply
Experts speak of a real estate bubble or a real estate crash when the supply of real estate is less than the demand. As a result, the prices of properties on the market rise. Sellers can demand high prices because there are many potential buyers. They accept a higher price if they urgently want to buy a property. However, this development is finite. There comes a time when prices are so overpriced that buyers are no longer willing to accept the conditions. The result is a fall in prices. This is known as the bursting of the real estate bubble. During this time, property owners can only sell at a loss.
High demand due to favorable financing
Banks and savings banks have been offering cheap loans for real estate financing for years. Interest rates are so low because the European Central Bank is pursuing a policy of low interest rates. This has increased the demand for real estate and prices have risen sharply as a result. Experts feared a real estate bubble. With the onset of the coronavirus crisis and the impact of the measures to contain the pandemic, there were fears that the bubble would burst. However, this did not happen. For this reason, experts agree that there is no real estate bubble in Germany so far. This would have burst due to the effects of coronavirus. At most, there are some regional developments that could come close to a real estate bubble. This is the case in major cities such as Berlin or Frankfurt am Main, for example. From a market perspective, however, the real estate market is healthy. The price increase can be explained by the relationship between supply and demand, which has risen since the start of the coronavirus crisis.
How will real estate prices develop in the long term as a result of the coronavirus pandemic?
The question remains as to how real estate prices could develop in the long term after coronavirus. The crisis has not yet led to a slump in prices. Rather, the trend is upwards, as demand for real estate is high and supply is limited. This is leading to rising prices. In addition, there is a shortage of housing, especially in larger cities. An increase in interest rates for property financing is also not in sight, meaning that more potential buyers can afford to purchase property. It can be assumed that purchase prices and rents will not rise indefinitely in the future. They are likely to grow less strongly or level off slowly. However, it is not yet possible to make a definitive statement on the long-term development of the market after the end of the pandemic.
Conclusion
Corona has influenced the development of real estate prices in 2021. Nevertheless, according to experts, there is no reason to wait any longer before buying or selling. As Corona is causing property prices to rise in 2021, selling will actually have a positive effect. You will generally receive a higher amount than if you wait a little longer. In addition, experts believe that the market situation is currently largely unchanged. It is therefore not possible to predict when a change might occur. From an economic point of view, you can proceed with the purchase or sale because changes are currently neither observable nor foreseeable,
Low interest rates for real estate financing
If you are thinking about buying a property, the widespread uncertainty is not appropriate. Interest rates have been at a persistently low level for years. This is due to the European Central Bank’s low interest rate policy, which not only affects interest rates for consumer loans, but also real estate interest rates.
Catch-up effects are possible
Once the coronavirus pandemic has been overcome, there could be a catch-up effect. This means that customers who have waited until now will decide to buy a property. In principle, it can be assumed that the real estate market will return to its original level and continue to operate without any significant restrictions.
Higher appreciation for real estate
To summarize, experts note that the effects of the coronavirus pandemic have not led to a fundamental increase in prices. Rather, real estate is more highly valued than it was before the pandemic. A beautiful home with its own balcony, garden or terrace has become more valuable due to the contact restrictions and the requirement to stay at home. Many activities that we have grown fond of have no longer been possible for months, or only to a limited extent. This means that home has become the new center of life, even for those who used to enjoy being out and about. What’s more, many people are working from home, which is also causing them to re-evaluate their own walls. As a result, experts assume that many buyers will be prepared to pay more for residential property even after the pandemic.
