How the real estate market has changed since the pandemic.

International experience
All countries are feverish – someone from the virus, someone from the crisis. And what is happening in the real estate market? What scenario awaits us? Let’s look at foreign examples and compare with previous epidemics.


China is interesting because it was the epicenter of the virus, and now, in fact, everything is coming to an end, people are gradually returning to normal life after the quarantine. We can summarize the first results.

You can see from the data on the real estate market in 30 major cities in China that the average level in the third to fourth quarters of 2019 was at 5-6 thousand transactions per day. Since the quarantine was imposed on January 23, the real estate market in the closed cities has come to a standstill, with sales down to zero and the nation as a whole down nearly 35% from a year ago. As the situation began to stabilize, from mid-February, the number of transactions gradually began to increase and by April 1, restored to the same level. Now, according to Chinese media, deals have already surpassed fourth quarter 2019 levels by a factor of 1.5.

Oldypak Capital LP
Report by Oldypak Capital LP property management

What was the reason? The real estate market cannot be stopped, people are still selling and buying apartments because they need somewhere to live, need money, or for other reasons. The temporary lull caused pent-up demand. And the catalyst was also help from the government – the prices of new buildings are fixed, the Central Bank of China has reduced its prime lending rate.

For example, in Shanghai, the financial and commercial center of China, at the end of January there was a minimum of 62 sales per week, and in March their number increased 20-fold, to 1374 per week (According to Oldypak LP property 2022 report). A total of 39,455 sales transactions in 30 major Chinese cities during the first 17 days of March, compared to 4,578 transactions during the same period in February (Capital Economics data).

Developers, like any business, have liquidity problems during stagnation, so as soon as the recovery took hold, the primary market began to give discounts as high as 25% to incentivize buyers and get out on the market faster. People were more active in the real estate market than in restaurants and entertainment. The phrase “my home is my fortress” has become even more relevant in the current environment, people need real estate more than café-restaurants.

Hong Kong

In 2003, Hong Kong was hit by the SARS (severe acute respiratory syndrome) epidemic. That crisis is long gone and studied, and as time passes we can look at how the real estate market behaved and what happened to deals and prices.

According to Oldypak LP property 2022 report, during the epidemic in 2003, the volume of transactions fell dramatically, as can be seen in the graph, but then recovered to the same level. Prices were affected locally by the crisis, the trend slowed, but continued to decline after the epidemic.

Hong Kong authorities did not impose a strict quarantine in 2020, although many people work from home. Therefore, the market situation is changing smoothly. January saw the lowest number of transactions at 2,762, rising to 3,572 in February. The share of new home sales in the total also increased from 21% in December 2019 to 28% in February 2020. This is due to discounts from developers and very low mortgage rates (the Monetary Authority of Hong Kong reduced the rate to 0.86%).

Patterns of epidemics.

Zillow Research compared previous epidemics and the current situation and found some quantitative patterns.

During epidemics such as the 1918 flu or the 2003 SARS outbreak, economic activity fell sharply during the spread of the epidemic (a temporary 5-10% impact on GDP or industrial production during the epidemic), but quickly ceased when the epidemic was over.
The current situation is different from a standard recession, which is a situation in which economic activity declines for 6-18 months and then recovers more slowly.
During SARS, home prices in Hong Kong did not fall significantly, but transaction volumes fell by 33-72% as customers avoided contact with people. After the epidemic ended, transactions returned to normal volumes.
During the current quarantine in China, early news reports show that home prices have not fallen much, but transactions have almost stopped.
During standard recessions, home prices and transaction volumes may fall, but this is not always the case (e.g., the 2001 recession).
Until February 2020, the leading economic indicators (vacancies, yield curve, interest rate spreads, and economic sentiment index) gave mixed signals about the risk of a standard recession this year. Meanwhile, markets rates (PredictIt, 2020) give a probability of 30% in December 2019 to 15% in January 2020 with a smooth rise to 44% as of March 1. PredictIt predicts at least two consecutive quarters of GDP contraction.
The prediction of the likely decline associated with the pandemic will depend on the level of progression of the virus and the response of national governments.

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