Coronavirus and real estate: what impact?

Like all sectors, from business to healthcare to socio-cultural, the real estate sector has been inevitably affected by the effects of the Covid19 pandemic that raged across the world in 2020. The climate of economic uncertainty that this event has caused is a completely new situation for our economy, not comparable to any of the crises that have occurred in the more or less recent past. Moreover, the restrictive measures put in place to protect the health of citizens have inevitably

• stopped visits to properties;
• decreased bookings for short term rentals for the summer;
• caused the temporary suspension of rents for commercial premises.

What was the state of the property market before the Coronavirus?

On balance, 2019 had proved to be a decidedly favorable year for the Confederation in the real estate sector. According to data published by CIFI Swiss Property Benchmark, rents had fallen considerably, the number of flats not rented had increased and there had been an increase in the value of real estate (especially residential properties) of around 3%, with a great satisfaction of investors.

The supply of residential property had grown until early 2020, thanks in part to the negative interest rates offered by the Swiss National Bank.

This trend could have continued to grow in 2020, but it was abruptly interrupted by an unforeseeable event such as the Coronavirus epidemic.

What is the current situation in Switzerland?

The State Secretariat for Economic Affairs (Seco) recently presented data on the economic recession in Switzerland this year. Forecasts had predicted an annual contraction in gross domestic product of 3.8%, but the current figures have revised this estimate downwards to 3.3%. Indeed, the containment measures implemented during the second wave of the pandemic were much less severe than in the first months of 2020, causing a less dramatic economic impact.

With regard more strictly to the property market, we have two parameters to consider in order to assess the situation

• the average time taken to publish advertisements for freehold flats;
• the number of listings themselves.

With regard to the first factor, a study carried out by the Swiss Real Institute of the Zurich University of Economics in collaboration with the real estate portal Homegate.ch shows that up to June 2020, flat sales listings were published for a longer-than-average period, but during the third quarter these times were halved: a probable consequence of the deferment of demand in previous quarters, but also of the rediscovery of the need to own a nice home after the lockdown period. As for the second parameter, the number of listings published on Switzerland’s main real estate portals was assessed by Online Home Market Analysis (OHMA), which reported a slight fall in demand for freehold flats. On the other hand, it should also be considered that during the lockdown many listings were not published due to the impossibility of physically visiting the homes.

What is the current situation in Ticino?

A recent study by analysts at Brulhart & Partners SA shows that the Ticino real estate market is reacting well, against all expectations. Sales have declined only slightly for multi-family buildings and demand for villas and flats has remained stable. In particular, there is considerable interest from Swiss-German and German buyers in the Sopraceneri region, while in the Sottoceneri region the impact is less pronounced and mostly directed at Italian customers. On the other hand, the office, retail and restaurant sectors remain under pressure.

What are the forecasts for the future?

Needless to say, the Covid-19 crisis has taken everyone by surprise, but each sector of the economy has tried to react quickly, adopting the strategies it considers most appropriate.

The latest “Monitor Switzerland” report by Credit Suisse shows that the situation seems to be stable in the residential sector, partly as a result of measures taken by the Federal Government. Tenants could even see a decrease in rent of around 2%, no losses are expected on mortgage payments and the danger of an increase in forced sales seems to have been averted.

The scenario for office and commercial properties is different: the (successful) introduction of smart working in companies could lead to a significant drop in demand.

It is therefore plausible that the first months of 2021 will also feel the impact of the Covid crisis, but the economic recovery is expected to be steady as the months go by, returning towards the end of 2021 to pre-pandemic levels, assuming there are no new violent pandemic waves.

However, the real estate market could take advantage of this lull to turn it into an opportunity: it is possible that the increased time people are forced to spend in their homes will trigger a drive to find more livable and comfortable solutions. This crisis could thus become a powerful engine for recovery.