How real estate prices will respond to covid-19 crisis

By Rogers Matovu | Monitor

Over time, Economics has dictated that during times of crisis, general prices of goods and services will respond either with an increase or a decrease in the price of any item. However, there exists a trend that prices of real estate especially land and houses do not respond the same way. The stress that the global shutdown inflicts on the property industry will reveal a lot about how resilient property prices are to this kind of event. It is true that property prices are very resilient in such times.

Prices for land or housing will not experience a rapid fall, their resilience will cause them to stay the same for a while or reduce slightly (about 10 per cent) as they wait to respond to other stimuli such as infrastructure and recovery in other business sectors. The real estate market is not as quick to react to situations as the stock market or other products.
In detail, how explicitly does a crisis like Covid-19 cause real estate prices to go higher or lower?

The 2007-2008 housing crisis and economic crisis in the USA that later spread to other countries globally is considered by many economists to have been the most serious financial crisis since the great depression of the 1930s. Many citizens may hope for something similar to happen, but such a crisis is impossible in the current times. The causes of the 2007 crisis were unmatched and are nothing close to what is happening now. What we are most likely to face now is nothing related or close to what happened in 2007.

As a fact, so far, it seems conclusive that the real estate market will witness a negative growth majorly evidenced by a reduction in sales volume but not a reduction in prices. The global economic slowdown coupled with the coronavirus pandemic is going to be a major cause. It would be true to say that even when prices go down a little, sales might not increase because people do not have money. The negative growth stems from the fact that prices will either stay the way they are or reduce slightly, which will all not evidence any increase in transactions.

Commercial retail space
It is estimated that more than 4,200 companies are due to close because of the pandemic that has caused a situation called financial distress and business failure. It is also right to assume that all these companies have been housed in commercial buildings around the country. This indicates that they are going to terminate their tenancies which will create a lot of vacant space in the commercial retail sector.

The truth is that tenants are generally distressed. Rates of commercial rental real estate are definitely going to go down because tenants cannot pay, they are closing businesses and also moving out. Too much supply of rental space, high vacancies and low demand will push the prices down to as low as $12 (about Shs45,000) per square metre up from an average $17 (about Shs64,000) in 2019 into 2020. But this will be for a select official buildings in town. Malls such as Acacia, Oasis, Village Mall, Lugogo Mall, will respond differently. This is because their category of clients such as banks, big super markets, big restaurants, and telecommunication companies, will not exit and they will still have capacity to pay.

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