In our series Personal-Financial.com explains we give a condensed overview of current economic issues. This time: ECB monetary policy – with an editor Nadine Oberhuber, who is responsible for investment, real estate and insurance at Personal-Financial.com.
Unlike most sectors, the real estate sector remained largely unaffected by the Corona crisis. Why is that?
This is, of course, because this industry is much more cumbersome and therefore reacts later than other areas of the economy and the financial market. It is a so-called late cyclical, which means that it only started to pick up late in the boom, but it also holds out a bit longer in a downturn than the other sectors. Because real estate cannot be built and bought from one day to the next – what is being built today was planned two years ago or even longer. And a great deal of what was last approved and pushed into the developers’ pipeline will also be built in a year or two. But many current construction processes will be delayed because of Corona when construction sites are down, materials missing, or artisans due to travel restrictions and closed borders. This will still have an impact, but will be delayed.
How far will the crisis change the real estate market?
Even if it sounds unsatisfactory, it is hard to say at the moment, because of course it depends on the duration of the pandemic and when we have overcome the worst because a drug or vaccine has been found? So when can we lead our lives as usual again – without having to fear a second serious pandemic wave. And without experiencing renewed shutdowns in public life and in companies. Finally, they could come if, due to the current easing, it turns out that the infection process worldwide does not weaken permanently, but becomes stronger again.
Rental amounts in the crisis
The unknown, which is still the most difficult to assess, is: How badly does the two-month shutdown affect the local economy and especially the population? We are seeing the first easing, but the crucial question for the real estate market will be how many companies will get through the crisis – and how many may have to give up in the long term. And what that ultimately means for unemployment and income. The real estate market will only continue to run as usual when buyers and tenants have enough disposable income to be able to afford higher housing costs on a permanent basis. Or to pay off their loans over many years. We know this from studies by the Bundesbank.
Therefore, the enormous number of ten million short-time workers in this country should make you think. Those who work less usually have to forego part of their income. It can then become scarce, especially for city dwellers. There, many spent 35 or 40 percent of their salary on housing even before the crisis. If it becomes 50 or 60 percent, that is often not possible.
How much does the new Corona Act help for tenants or borrowers where money is tight?
Of course, it helps that you don’t have to worry about losing your apartment if you can’t pay your rent as usual. Because the new law states that tenants can postpone their rents for three months – from April to the end of June – if necessary. The landlords have to pay them the hour. And without defaulting tenants as usual after two unpaid rents can be canceled. However, it only affects those who can demonstrate that they have actually suffered losses due to the corona pandemic. For example, because their employers sent them on short-time work; because they are restaurateurs whose businesses have had to close; or because they are self-employed and freelancers and also suffer from the lockdown – and therefore earn less.
On the other hand, anyone who has previously done poorly and was chronically short of cash cannot simply say despite the law: Sorry, I’m not paying rent. However, he should contact his landlord as soon as possible. Because in such cases they often offer advice and individual payment plans. So: Don’t just duck away, but actively approach the landlord!
The law brings relief
In addition – and this is very important – the rent deferral is called Notthat you can save yourself three rental payments, but of course you still have to pay them later. And there can be a substantial sum, for example, if you pay 800 euros in rent, you suddenly have 2400 euros in debt to the landlord, which you have to pay off on the side. And the usual rent continues. However, the tenant has a maximum of two years to pay off the sum. The landlord can only give him notice after this period if he is still in arrears with two months’ rent.
And be careful: If after June – i.e. after the law has expired – additional rental debts are added, termination without notice is also possible before the end of the two years. At least when an amount of two months’ rent has accumulated outside of the corona period. So the law is a relief – but not a license. But it also helps all homeowners with whom a real estate loan is now running.
Law extension is possible
Regardless of whether it is for owner-occupied real estate or for rented apartments: You can also have your loan payments held by the banks for hours. For them, the credit appears to be frozen for three months and later thawed out. You don’t have to pay the amounts later, you just hang the outstanding payments at the end of the contract. So you just pay three months longer.
Of course, all this only applies as long as the law is not extended. In the event that the corona pandemic turns out to be serious and prolonged, the government has reserved an extension to these rules.