As people continue to work from home, there will be less demand for office space. Due to the financial impact of COVID-19, many workers have had their wages cut or lost their jobs. One advantage of the commercial real estate sector is its flexibility: retail stores become warehouses and old factories become hotels.
There have been a lot of ups and downs for some time now. While Melbourne has fared better than before, the housing market has improved, and it has done much better since the Great Recession when rents and apartment prices fell. This is because people continue to buy homes for a few reasons. First, people want a better home, and after being isolated from each other during a pandemic like the one that has been with us for quite a while, we have found something particularly beautiful and secure to live in.
On the other hand, many of the frictions in the real estate market are due to demand-side shocks, as buyers are unable to conduct an optimal search process and place their bids due to COVID-19 restrictions and orders placed documented a decline in the number of new homes and pending home sales in fifty major US cities during the early phase of the pandemic. By and large, the properties are in illiquid condition. House builders in Melbourne are facing this dire situation as well.
The authors note that COVID-19 will affect the housing market through several channels, including the closure of entire neighbourhoods and cities, concerns about long-term contagion, mistrust in the effectiveness of sanitation efforts, general economic decline, and specific factors in the housing market. In the short-term scenario, house prices will fall by 4.16%, quantified by a 6.49% fall in prices over the medium term in early 2021. The decline in home sales is likely to be due to demand-side incomes and psychological stigma.
Looking at the impact of the pandemic, our analysis shows that price misalignment has increased. However, as the economy becomes more dynamic, this misalignment is likely to diminish. Unlike in the previous episode, this time it is not due to excessive indebtedness, but to a steep decline in operating income and aggregate demand for commercial real estate.
Many homeowners could face serious financial repercussions if they must sell assets, which would create a buyer’s market and increase upward pressure on interest rates. However, because most investors have little leverage, the likelihood of a serious emergency remains low.
Homes are a long-term investment and a great asset for many households, but preferences can change, and immediate economic uncertainty could sideline potential buyers for some time. For example, working from home during the pandemic may be less efficient for leisure time, and personal networking opportunities may be scarce. A limited supply of inventories and sustained growth in home prices could make it difficult to address possible steps.
COVID-19 has affected even the luxury home builders in Melbourne and across Australia. Hollywood Plastic Surgeon Dr. Raj Kanodia had to slash down the asking price of his home from $180 million to $94 million due to the pandemic affecting the real estate business. Recovery will come in three phases: today, tomorrow, and in the distant future. It is too early to have a clear picture of the final outcome. Some property types face unique challenges, some of which are severe (e.g. the hotel sector) and others mild (e.g. self-storage properties). Despite the obstacles, the recovery process will undergo significant changes driven by new behaviours of people staying at home or working from home during this time.
The end of the nationwide eviction ban, which affects apartment buildings that receive government assistance, came after a series of local moratoriums that were in effect were lifted, as one in five tenants was threatened with eviction starting in September. More than 1,000 new hotels were opened during the pandemic. Many companies plan to reopen offices by Labor Day. The data and insights that these two studies provide are important, but they are trying to get people and companies to use office space in the future.