In the corona pandemic, the moment that the year-long price rally on the real estate market is coming to an abrupt end appears to be drawing closer: first harbingers are coming from the playground of the rich in New York. Here in the hotspot for luxury real estate, prices have clearly plummeted over the past few weeks. The situation is somewhat different in Germany. But here, too, the brake marks on the hot house market can no longer be overlooked.
“New York is a paradise for buyers,” says luxury broker Sebastian Steinau. “Everyone has been expecting the big bang here for a long time.” The man from the Sauerland is convinced: “Now he is there.” Steinau works for the large New York real estate group Corcoran. Anyone who waits long enough has a good chance of getting a bargain, the 41-year-old tells the “Welt am Sonntag”.
900 square meters, five rooms, six bathrooms, a separate entrance for servants and a whirlpool with a view of the trendy Chelsea neighborhood on the chic Upper East Side for $ 25 million. A prospect from Eastern Europe has been waiting for this affordable offer for four years. His patience paid off. Four years ago, the owner still wanted $ 50 million for the property. Apparently this is not an isolated case. The fact that prices in New York are not just falling in luxury real estate, with historically low interest rates on mortgage loans, gives rise to premonitions. The corona crisis certainly has the potential to push prices even further.
Real estate markets are considered to be very stable and much more robust than equity or bond markets. Even disasters like the terrorist attacks of September 11, 2001 or the financial crisis of 2008 have not been able to affect house prices as much in the past as the pandemic is now. The prices rushed into the basement by a maximum of 25 percent. In the last two weeks of March – at the time the epidemic was just beginning – the average price for real estate in New York was already 11 percent below the pre-Corona period, according to the real estate company Douglas Elliman. There is no data yet for the horror month of April, when the dead had to be stacked in tents. However, one can assume that the prices have fallen further since then.
And exactly this trend could continue indefinitely. Recession, short-time work, rising unemployment – no one knows what will happen. Nobody can tell when the pandemic is over. The level of uncertainty among people is great – much greater than in previous disasters.
Even the super-rich do not miss the crisis without a trace. The US magazine “Forbes” had 2095 billionaires in mid-March – 58 fewer than in the previous year. And every second of them is less wealthy than last year due to Corona and the heavy losses in the financial markets. Even US President Donald Trump was not immune to the corona crash. The property tycoon’s assets shrank by a billion to $ 2.1 billion within a month.
Are investments in real estate in this country safe?
The Corona traces can no longer be overlooked on the German housing market either – even if the prices are much more stable than those in the USA. The market in Germany is not affected by the Corona crisis, the online platform Immoscout24 announced at the end of April: “Both the offer and the rental and purchase prices are developing very consistently at a high level.” Real estate is “a safe form of investment and German real estate market is stable and highly dynamic, ”said the cheer.
In fact, prices rose to a new record high in the first quarter. At the same time, real estate experts note an important change: with transactions of EUR 2.3 billion in residential and commercial real estate, April was the weakest month since 2012, writes the “Handelsblatt”, citing data from the service provider Savills. According to a survey, real estate companies stated that they had lost 50 percent of their turnover in the past eight weeks. The commercial real estate market particularly clearly reflects the reluctance of customers to buy, it depends more directly on the economy than the market for residential real estate. The fall in demand should also have an impact on prices at some point.
However, the experts are still divided on what the second half of the year will bring. According to studies, the Corona crisis could also cause property prices in Germany to slide. The Cologne Institute for Economic Research (IW), for example, expects prices on the residential property market to drop by up to twelve percent. In view of possible bankruptcies and rising unemployment, rent expectations are likely to fall because households have less income, quotes the “Welt am Sonntag” from an IW study. “This could tend to have a negative impact on house prices.” The research institute Empirica even anticipates a price drop of up to 25 percent.
On the other hand, experts at Deutsche Bank are only predicting temporarily falling real estate prices due to the corona pandemic. In view of the slumping stock markets, investors are likely to put money into German residential properties, which are considered solid, in the medium term, they believe. The escape to secure facilities will “tend to increase prices” for apartments and houses.
Interest rates are low, as are bond yields from the European Central Bank’s buying programs. In times like these, investors traditionally rely on more profitable alternatives, including real estate. Reason enough for the President of the Real Estate Association Germany, Jürgen Michael Schick, to look optimistically into the future: “We assume that the purchase decisions are not canceled, but postponed.” Nobody can be sure yet.
The article was first published on ntv.de.