Covid-19 and global city residential markets

Covid-19 has disrupted the global economy and few sectors have been unaffected, with leisure, hospitality and retail being particularly hard hit by lockdowns and social distancing measures. Residential real estate has also been impacted by the pandemic, but has so far proven one of the more resilient sectors.

While transactions fell in some markets between February and May, they have largely rebounded to pre-pandemic levels in September and October, buttressed by stimulus measures, pent-up demand and low interest rates. So far, prices have also largely avoided falls. Current distress levels are much lower than compared with the previous downturn. Unlike the global financial crisis, this recession is not rooted in the banking sector. Interest rates remain at record lows and are likely to remain low for some time. This makes mortgage debt affordable.

Transaction volumes in Europe

The approach of European governments to prevent the spread of the virus varied by country, from an early and strict lockdown in Spain to no lockdown at all in Sweden.

As part of initial lockdown measures in some countries, property viewings and home moves were halted in an effort to minimise contact between people, reducing transaction volumes. Although the markets have reopened, in some locations transactions have yet to rebound to previous levels.

Since the start of the year, house prices in European cities have also proven fairly resilient. Prices in Paris and London have so far avoided a fall. The market in Paris had been performing well prior to Covid-19. As of June, prices stood 3.7% above where they were in January.

In the UK, pent-up demand and a stamp duty holiday introduced in July has helped support the market. As of September, London house prices stood 4.5% above where they stood in January (according to data from Nationwide).

Second waves of the virus do pose a risk and government approaches continue to vary around the world. Regardless of policy changes during any subsequent waves, governments recognise the role that the property markets have and will continue to play in any economic recovery and are ensuring that the market can remain open.

Prices have so far proven resilient. Property prices usually lag transaction volumes, however, so it is likely too soon to have realised the full impact.

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Source: Savills Research Impacts: Covid-19 and global city residential markets