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Business Amidst Covid-19: The State Of Real Estate

Date: May 5, 2020

Doing business amidst the Covid-19 pandemic changed the state of real estate, but not too drastically.

According to a lesson given by Professor Enrique Soriano for the AFFI, forecasts show that the industry is more likely to take a concrete hit in the economy a quarter after things return to normal.

Prior to all this, global real estate showed immense growth and potential in improving economies, but this was decelerated by the virus outbreak.

This article enumerates the effects of the pandemic on both the business and investor side of the real estate industry around the world, especially in the Philippines.


DEMAND FOR GLOBAL POLICIES

Since the pandemic is a health concern, the biggest requirement is a policy to improve the overall healthcare system to end the crisis. There have been different approaches and measures taken that fall under a few categories including:

  • Healthy Policy - Testing regime, isolation of infected individuals and providing treatment for those with symptoms. Expedition of drug trials for vaccination or search for existing remedies to alleviate symptoms.

  • Social Policy - Controlling social behavior by restricting movement and travel, inside and outside of the country. Shutting down of schools and non-essential  establishments to avoid any form of mass gathering.

  • Monetary Policy - Major central banks are reducing policy rates and initiated programs with lower long-term bond yields to limit economic damages.

  • Fiscal Policy - Governments support healthcare systems and by spending packages to fill the void of private spending and lessen job losses.

  • Real Estate Policy - Temporary prohibitions of evictions, suspension of mortgage payments, suspended construction, temporary rental rebates and rent discounts, are offered in various parts of the world to ease the expenses of individuals.




LOSS IN GROSS DOMESTIC PRODUCT (GDP)

Economic growth is placed under an abrupt halt in the year’s first quarter, due to the temporary (even permanent) closure of businesses, causing great fear and uncertainty among the people.

The severity of loss in GDP caused by Covid-19, shows just how resilient real estate is in the Philippines:

  • Ideal Scenario - 0.2% (Php 43 Billion)

  • Worst-Case Scenario - 0.59% (Php 98 Billion)

  • Realistic Scenario - 0.3% (Php 65 Billion)


According to a report by JLL, the severity of the economic downturn will all weigh down to three things:

  • The extent of the isolation and social distancing measures

  • The duration for which they are in place

  • The fiscal and monetary policy response


We’ve shared with you the potential of Philippine Real Estate investment, so despite the actual amount, the percentages above compared to other industries are not as intense. 


PRICE REDUCTION AND PURCHASING POWER

The crisis is a short-term setback and in the course of history, real estate remains to be an attractive asset for investment in the long-run. After the lockdown quarantines, prices are expected to recover and may proceed to business as usual.

There’s a possibility that the pandemic may prolong, which causes fear in the market because prices will drop inevitably. Like in Hong Kong, property prices in office rentals have dropped between 3-7%. However, this may open opportunities for smaller investors to enter the real estate market at a lower price.

The drop in value may be leveraged by sellers and developers by lower price points and flexible payment terms. Especially with banks around the world cutting back on interest rates, like Australia at 0.25% rate, the Philippines’ BSP (Bangko Sentral Ng Pilipinas) is expected to follow suit.

Furthermore, Overseas Filipino Workers (OFWs), that take up 30% of the country’s GDP because of their foreign currency remittance, are expected to decrease because they are at risk of being sent back to the Philippines, lose their jobs or behave more frugally until the situation has stabilized. This means Filipinos back home are less likely to have as much purchasing power.


UNWAVERING DEMAND FOR HOMES

The residential sector comprises a large demographic, ranging from low-end to high-end investors. A backlog of 6-million housing units promotes the development of both horizontal and vertical asset projects.

Mass-housing is least affected by the crisis, because the government (through PAG-IBIG) is aiding the boost in demand. Furthermore, there are programs maintaining the steady momentum of construction activities in emerging countryside cities, as well as in the metro.


NEW NORMAL FOR PROFESSIONALS AND COMPANIES

The crisis has caused 2.6 billion, a third of the world’s population to go on a lockdown or Enhanced Community Quarantine (ECQ). Companies across the globe are forced to make tough decisions, on downsizing their employees or looking for ways to do their retail business. 

The limitations on going out in public was reduced down to buying necessities such as food and medicine. Non-essential businesses were hit with losses, especially those that don’t have a business continuity plan (BCP) to operate during crisis.

Real estate is a fortunate sector for a lot of agents and brokers, because there are tools available for them to cope in the “New Normal”:

  • Creating An Online Presence

    • Business Website

    • Social Media Profiles

    • Listing Properties On Major Listing Platforms

  • Digital Marketing

    • Mobile CRM

    • SMS Campaigns

    • Email Campaigns

    • Video Webinars

  • Focusing On Community Over Competition

    • Networking With Other Professionals

    • Looking For Partnership Opportunities in the ASEAN Region

    • Remote Training Programs

    • Brand Promotions

These examples are just a few of how the real estate industry can leverage technology to stay active in their business operations and relevant in the market.

CONCLUSION

Maintaining business amidst Covid-19 manifests a lot of barriers, considering the current state of real estate.

This shouldn’t cause much alarm for both investors and industry professionals, because there are still opportunities present, as we have enumerated in this article:

  • Global Policies Designed To Stabilize Economies

  • Minimal Severity Of Real Estate GDP Loss

  • Lower Prices Can Be Investment Possibilities

  • Homes Will Keep The Industry In-Demand

  • Technology Empowers Agents, Brokers And Developers

With the world experiencing uncertainty, it remains certain that Sqft Global Properties Philippines Inc. will be here to inform you about the latest updates on the state of real estate. You can contact us with your inquiries and we’re more than happy to answer your questions.