Behavior of real estate assets in times of pandemic

Blog Frontal / 13-05-2020

The spread of coronavirus is having consequences across the board. The real estate sector is not the exception.

The pandemic caused by coronavirus is having an extraordinarily negative impact on global growth, especially in the export, tourism and passenger transport sectors, as well as the stock markets, among others. Impact estimates are incalculable.

The real estate sector is also slowing down. The covid-19 has left pending the the signature of many operations; it has paralyzed the residential, office, and retail markets and has contracted the day-to-day of investment funds, in which we were very active analyzing new purchases in the country. Now we all wonder what will happen after the state of alarm and how the coronavirus crisis will affect us.

According to Cámara Chilena de la Construcción, about 300 works have already been stopped, which represents 30% of the total, dramatically affecting employment, which includes about 4/5 of all employment in the sector in Chile. This entity also estimated that sales could fall between 28% and 30% due to the Covid-19 pandemic. This, due to the lower economic activity, the deterioration of employment, and the situation in which a large part of financial investments has remained.

Uncertainty is huge; and we all know that full confidence in the economy is needed to buy a property.

We, at Frontal Trust, have noticed greater credit restriction in the granting of mortgage loans. However, this sector stands out for having multiple segments that behave quite differently. It is not uncommon for some to go up and others to go down. We believe that apartment prices range of less than UF 3,000 to UF 4,000 will continue, despite the crisis with rising values, banks will continue to set restrictions on mortgage loans and high-value properties of more than UF 10,000 will be heavily harmed, the same situation is expected for the demand of second homes. There will also be more supply of used housing, while the new ones will continue to decrease.

We don’t know when the recovery will start, but as long as the contingency lasts, chances are that no acquisitions will be made so as not to risk investments. Once it is announced that the pandemic has been controlled, we are sure that confidence in the sector will gradually return and the operations that did not materialize in this period will recover.

Meanwhile, and awaiting a recovery, at Frontal Trust we are taking advantage of confinement to train and update our portfolios and strengthen relationships with our clients. This time is helping us to recycle ourselves and bet much more updated on technological innovation.