Coronavirus is damaging the economy, but flats continue to rise in price
Just as the virus itself is being studied by many scientists and doctors, economic and property experts are trying to understand its impacts and effects on the economy and markets. And it is by no means straightforward. While the current pandemic is crushing national economies as well as the global economy, it has had no effect on flat prices. Quite the opposite: flat prices in developed countries continue to rise steadily. We asked Bohemian Estates property expert David Novotný what is behind this situation.
In many respects, comparisons with the global financial crisis of 2008 have been and continue to be made, but the novel coronavirus pandemic appears to be specific and unpredictable in many ways. Similarly, it is not yet possible to describe with certainty how the virus behaves in infected organisms.
“The 2008 financial crisis was one of the more conventional crises, whose development and impact could be estimated more easily based on previous experience. During that crisis, people’s incomes fell, along with the market value of flats. In other words, a large part of the population lacked the funds to afford to buy property. The situation we are facing now is unprecedented in many respects. It appears that people sitting at home during quarantine have disposable funds and want to use them appropriately and profitably. In other words, they want to invest, and property is still considered a relatively safe and stable way to store money. A significant percentage of people have the money to invest in property. Demand remains enormous and supply cannot respond, if only because of the slow pace of construction and lengthy planning procedures,” explains David Novotný, owner and managing director of the real estate company Bohemian Estates. Since its establishment in 2006, the company has provided comprehensive services in the management of and investment in residential and commercial property. Eurostat data for the second quarter of 2020 also confirm the trend of rising prices despite the crisis, showing an 8% increase in prices. Prices did not fall even during the summer holidays.
The crisis revived investor interest
“Flats are not primarily being bought by those who dream of owner-occupation. During the crisis, many households have had to cope with lost income – if they depend solely on current income to make ends meet, the current situation generally makes the prospect of buying property even more remote. Demand for property during the coronavirus crisis has increased particularly among those with disposable funds or accumulated reserve capital who are looking for a suitable investment opportunity. They are also benefiting from the currently reduced mortgage rates and the abolition of property acquisition tax. Flats are therefore being bought first and foremost by those who want to invest, not by those wishing to fulfil their dream of owning a home,” explains David Novotný of Bohemian Estates.
During a crisis, opportunities to trade in other commodities are also limited, or their price movements become less predictable and reliable. This contrasts with property, which offers investment security, returns of up to 7% per year with effective management, and rapid liquidity.