Recession and collapse, or a thaw and recovery? A look at global property markets during the pandemic

Gatherings banned, schools closed, shops shuttered, restaurants shut, office buildings deserted and factories completely closed: COVID-19 has brought economic activity in most countries to a standstill or near standstill over the past few months. Temporary work has increased, unemployment has surged and the risk of recession has risen sharply.

Against this backdrop, housing rental and sales markets in many countries have also entered a 'deep freeze'. Most buyers have adopted a cautious wait-and-see approach, temporarily suppressing demand, while sellers wanting to offload properties may have to cut prices or offer other incentives.

Ratings agency Standard & Poor's estimated that total global property sales in 2020 would fall by 15% to 20%.

The pandemic-driven plunge in transaction volumes would not necessarily trigger a sharp fall in house prices, but property sectors around the world were certainly facing a difficult year.

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United States: commercial property could be hit hardest

In its Financial Stability Report released in early May, the Federal Reserve warned that commercial property could become one of the hardest-hit markets as the pandemic intensified.

According to Federal Reserve data, by the end of 2019, the total market value of US commercial property contributed US$11,400 to US GDP. However, with workers losing jobs, businesses suspending operations and companies unable to pay office rents, a widespread mortgage default crisis was highly likely, potentially triggering a crisis in the commercial mortgage-backed securities market.

According to Fitch Ratings' latest report, the pandemic's severe impact on tourism and retail caused US hotel and retail default rates in May to rise rapidly to 30% and 20% respectively, from 1.44% and 3.51% in March 2020.

During the pandemic, office workers around the world have had to work from home.

Even if the pandemic eases, office buildings will inevitably face emptying out if working from home becomes the norm, dealing a substantial and lasting blow to the commercial property market.

Meanwhile, the uncertain future of US retail and hospitality also casts a shadow over commercial property's prospects.

Yet in contrast to the commercial property crisis, the US residential market has not experienced the steep house price falls many had imagined.

Data published on property website Redfin showed that the national median home sale price in April was US$303895, up 4.9% from 2019. Home sales totalled 425195, down 22.7% year on year. There were 1,226,000 homes for sale in April, 21.4% fewer than a year earlier;

New listings totalled 457,600, plunging 41.4% year on year. In an interview with CNBC, Redfin CEO Glenn Kelma attributed the absence of a sharp price fall to 'demand exceeding supply': homebuying demand had fallen by around 20%, while demand to list homes had dropped by around 60%.

Housing data provider CoreLogic also forecast in an early May report that US house prices would rise 0.5% over the year from March 2020 to March 2021.

Even with GDP shrinking sharply, unemployment remaining high and people actively saving, enthusiasm for buying homes had been affected only to a limited extent.

A recent survey by the US National Association of Realtors (NAR) found that only 16% of respondents reported a significant pandemic-related decline in buyer interest, while 78% said interest had not changed substantially.

According to the US Mortgage Bankers Association (MBA), home purchase mortgage applications rose 6% week on week in the week after the Federal Reserve cut interest rates by 50 basis points in early March. On 27 May, MBA data showed that US home purchase mortgage applications in the week ending 22 May rose 8.6% year on year. This was the sixth consecutive weekly increase, bringing the total rise since early April to 54% and taking applications to their highest level since January that year.

Of course, not everyone was optimistic.

Susan Wachter, a professor at the University of Pennsylvania's Wharton School, had warned that 'the enormous increase in the money supply' directly caused the previous US housing bubble and mortgage crisis.

Realtor.com predicted that the US property market's rebound would follow a W-shaped path rather than a V or U.

The website forecast that millennial homebuyers and activity in the existing-home market would drive national home sales higher in July, August and September, before an expected resurgence of the pandemic caused another decline in winter.

Although the Federal Reserve's near-zero interest rates and government policies supporting economic recovery appeared likely to benefit the property market for a time, uncertainties including high unemployment remained underlying risks.

 

Canada: sales to rebound by more than 40% in 2021

COVID-19 brought Canada's property market to a standstill, leaving millions unemployed and pushing the economy into deep recession. Homeowners began to panic, fearing the crisis could cause a property market crash and a steep decline in the value of their biggest asset.

These fears were not without foundation.

The latest market data showed that Canadian home listings had almost dried up, open homes had been cancelled, buyers were staying home and transactions had essentially ground to a halt.

Data showed that Canadian home sales in April fell sharply, by 40%–70%. In individual markets, Toronto-area resales in April fell to their lowest level in 30 years. The Toronto Regional Real Estate Board reported a 67% decline in resales compared with the same period a year earlier, while the seasonally adjusted year-on-year fall in March was 66%, the largest on record;

A property report released by the Real Estate Board of Greater Vancouver (REBGV) on 2 May showed that 1,829 properties sold in Greater Vancouver in April, down 29.1% year on year and 43.1% below the average April transaction volume over the past 10 years. It was also the lowest April transaction volume since 1995;

The pandemic also severely disrupted Calgary's property market, with oil prices plunging and intensifying the impact.

Clearly, the pandemic had deterred many homebuyers, but sellers reacted similarly. This parallel response temporarily balanced supply and demand, supporting prices.

Over time, however, that support weakened. Year-on-year growth in Greater Toronto's MLS Home Price Index eased from 11.1% in March to 10.2% in April. Meanwhile, Greater Vancouver house prices fell for the 11th consecutive month. The area's composite benchmark price across all property types in April was C$1,008,400, down 8.5% year on year and 0.3% from March that year.

The consequences of a Canadian property market crash would be unbearable: real estate and residential construction accounted for almost 15% of Canada's GDP the previous year.

Property is a key driver of economic growth in Toronto, Vancouver and Montreal, with substantial immigration fuelling prosperity across sectors from agriculture and design to insurance and mortgage broking.

Canada's largest bank, Royal Bank of Canada, did not expect the country's property market to crash.

Its analyst Robert Hogue forecast that the pandemic could cause existing-home sales to plunge 30% that year, reaching a 20-year low.

However, with both buyers and sellers adopting a cautious wait-and-see approach, house prices could remain stable in the near term. Although the composite benchmark price was expected to fall 2.9% year on year in the second half, that trend could reverse the following year.

Hogue forecast that low interest rates, a strengthening labour market and a rebound in immigration would help sales recover by more than 40% in 2021, returning housing to a seller's market.

Overall, population growth and housing shortages would drive rising demand, providing an important foundation for a flourishing Canadian property market.

 

Australia: little hope of a rapid property recovery

As Australian states successively entered the second stage of easing COVID-19 restrictions in early June, consumer confidence improved, the property market began to stabilise and rebound, and auction clearance rates for existing homes in capital cities improved.

However, the pandemic's severe economic impact had sharply reduced household purchasing power and driven investors away. New home construction, renovations and existing-home sales were all badly affected, leaving little hope of a rapid property recovery.

Preliminary figures from major Australian property website Domain put the national preliminary auction clearance rate at 56.4%.

Its senior economist Nicola Powell said that although this was a reasonable result given Australia's weak economic conditions, a clearance rate below 60% suggested house prices were likely to keep softening.

AMP Capital chief economist Shane Oliver predicted that COVID-19 could cause 'Australian unemployment to soar to 10% or higher, potentially leading to a surge in debt-servicing problems and forcing people to sell property, in turn driving a sharp fall in property prices.

In the most optimistic scenario, house prices across capital cities could fall by around 5%; in the worst case, property prices could fall by around 20% or more.'

Meanwhile, property owners had to offer rent reductions or waivers to retain tenants.

Australia's tourism industry had come to a complete standstill since the country suspended all international flights and closed its borders in mid-March.

Rental housing vacancy rates in major tourist cities such as Sydney soared to their highest levels in nearly 20 years, forcing landlords to cut rents to retain tenants. Commercial property owners were also compelled to reduce or waive retailers' rents to help lower their operating costs.

Construction also faced numerous challenges. Industry analysts considered small building companies particularly vulnerable, struggling to maintain their funding.

With several Australian government stimulus programmes due to expire in September that year, residential construction continued to face multiple challenges involving funding, technology, labour, market conditions and economic weakness.

 

China: more than 300 policy interventions as the property market stabilises overall

In China, the annual wave of people returning to their home towns to buy property during the Lunar New Year usually creates a spring sales peak. However, the sudden pandemic sent housing markets across the country into near 'hibernation', with transaction volumes falling repeatedly and prices also declining.

Monitoring by property consultancy and data platform CRIC showed that commercial housing transactions in 88 key Chinese cities during the 2020 Lunar New Year holiday fell 63% compared with the 2018 holiday. Some third- and fourth-tier cities recorded no transactions, with housing demand suppressed in the short term.

Beike Research Institute data showed that in 2020, Beijing Lianjia's real-time existing-home transaction volume from month 1 through February fell around 57.6% year on year. The average existing-home transaction price in Beijing in February was RMB 54115 per square metre, down 8.6% month on month and 9.7% year on year. The average asking price for new listings was RMB 57790 per square metre, with the month-on-month decline widening to 3.9%.

A China Index Academy survey report on the pandemic's impact on property markets and businesses found that nearly four-fifths of 500 property executives believed its dampening effect on housing exceeded that of SARS in 2003. Respondents were generally pessimistic about the property market's prospects for 2020, with more than half expecting the impact on the overall market to last two quarters.

In practice, however, the most severe impact on housing lasted only two months. Thereafter, improving pandemic control in China from the second quarter, the continued restoration of production and everyday life, and the gradual release of homebuying demand helped the property market bottom out and recover.

Beike Research Institute's series of half-year housing market reports for 2020, released on 2 July, showed substantial divergence in China's property market during the first half of 2020: new and existing-home markets had largely recovered, while the rental market experienced a subdued peak season.

Beike Research Institute chief market analyst Xu Xiaole said monthly transaction trends showed a clear recovery in existing-home sales from March. In March, Lianjia's existing-home transactions across 18 key cities exceeded the combined total from month 1 through February by 41.8%. Month-on-month growth in months 4 and 5 reached 39% and 19% respectively. Although June transactions fell from May, they remained 21% higher year on year, indicating that the pandemic's market impact was gradually fading.

On prices, the pandemic caused average existing-home prices in key cities in the first quarter of 2020 generally to fall from the previous year's fourth quarter. Average prices then broadly rebounded in the second quarter as the market recovered.

For new homes, Beike Research Institute senior analyst Pan Hao noted that, within the first half of 2020, second-quarter transaction volumes across 66 large and medium-sized cities approached those of the same period a year earlier. However, cumulative first-half transactions remained a tenth lower, showing that recovery was still gradual.

In contrast to new and existing-home sales, the pandemic disrupted the rental market's seasonal pattern in the first half, leaving the traditional peak season very quiet. Beike Research Institute data showed that severe pandemic conditions pushed rental transactions in key cities to their lowest point in February, bringing the market almost to a standstill. Gradual improvement began only in March. Average asking rents for new listings were generally low, and landlords' rental expectations remained subdued.

Properties were taking a long time to let, and the rental market was shifting in tenants' favour.

Centaline Property chief analyst Zhang Dawei believed that, judging by conditions in May and June, housing markets in most parts of the country had essentially recovered fully, with some areas even recording year-on-year growth.

This was closely linked to the many housing policies introduced in the first half. Centaline Property Research Centre data showed that 304 property-related policy interventions were announced nationwide in the first half of 2020. These included talent recruitment policies of varying scope, home purchase subsidies, household registration policies and earlier moderately accommodative measures to ease the burden on property developers.

Looking ahead to the second half, Beike Research Institute expected divergence among existing-home markets in key cities to intensify further. Core cities, with strong supply and demand, would have more sustainable momentum.

In the rental market, delayed demand would continue to emerge, easing supply and demand pressures in the second half. However, landlords' rental expectations would remain low as the market continued to shift in tenants' favour, giving tenants greater control and more room to negotiate.