Coronavirus: How social distancing, uncertainties in economy affect property market
As people become increasingly apprehensive of the deadly impact of coronavirus with social distancing being observed religiously as a preventive measure, the property market and real estate investors are taking the heat, BusinessDay findings reveal.
Though the impact of the rampaging virus is not yet seen or felt in house prices or rents, it is already impacting negatively on market transactions as reflected in inspections which neither buyer nor seller is ready to undertake at the moment.
Effectively, viewing which precedes buying and selling a property has stopped completely because the buyer avoids close contact with the seller or agent and vice versa.
“Prices and rents are not affected yet; but the way we are going, if this continues till the next one month, prices will drop significantly,” Gbenga Olaniyan, CEO, Estate Links, told BusinessDay on phone.
Chidi Etoniru, Managing Partner of Joe Etoniru and Associates, a real estate development company, corroborated this, saying, “we had a client who wanted to buy a property, and we already finalized everything but due to the virus outbreak and currency uncertainty, he said he would want to wait for the next 90 days to watch the market.”
The fear and apprehension which this deadly virus has created in people is all-pervading and has uncertainty in the economy. People have issues bordering on job security, health status and life itself.
“With many workplaces closing down operations, the stock market crashing and economic activities grounding to a halt with attendant loss of income, real estate sales will take a hit over the coming weeks and months,” said Jolayemi Ekundayo, a real estate consultant and marketer.
Ekundayo explained that there might be declining interest from home buyers, noting that the property market has been weak for some time, and rents have fallen considerably in major cities such as Abuja, Lagos and Port Harcourt.
A Broll Intel Property Market Viewpoint for the second half of 2019 had predicted the market would be stabilising by now but the deadly virus is threatening it. Before now, industry experts had projected that the market would grow at 2.65 percent in 2020 with a high expectation that the sub-market were also going to stabilize.
In the face of the growing apprehension and uncertainty, analysts say except the government takes necessary steps to strengthen the economy, the pandemic will push the economy into another recession.
This explains the expectation by industry players that government should announce fiscal stimulus package to reduce the negative impact of the virus on the real estate sector in particular and the economy as a whole.
They cited the US example where the Federal Reserve Bank cut rates, twice in two weeks, soon after news broke of the developing coronavirus outbreak which they reasoned was, on its own, positive for the housing market.
But Nigel Stapledon, Research Fellow in Real Estate and a consultant to state governments and the property market, says “rate cuts and stimulus packages can only do so much,” explaining that the reason the bank cut rates was because coronavirus is negatively impacting the economy as a whole.
“Yes, the government has released its stimulus package and there may be more fiscal stimulus on the way, but there are limits to what any government can do. There will be negative effects on employment. It will be a short, sharp shock to the economy,” he said.
Stapledon is optimistic, however. He expects a strong rebound by 2021, but in the short term, it will hurt. “There are sectors in the economy where people will lose jobs and it’s fair to say coronavirus is generating uncertainty more broadly in the community and, in turn, in the economy,” he submitted.
High interest rate or cost of funds has been a major concern in the property market in Nigeria, especially on the supply side. This is why the analysts are saying that government should put a stop to payment of interest charges on cost of funding so as to help developers reduce their losses in this period.