Panic helps nobody

The COVID-19 coronavirus is spreading like wildfire across continents, countries are closing their borders, entire populations are being placed in quarantine and development on the world’s stock exchanges is bleak.

 

people-brasil-guys-avpaulista-109919

 

We are in the middle of a pandemic, the kind of crisis that many of us have never experienced before. Unfortunately, collective anxiety appears to be spreading more quickly than the virus. What are we worried about? Not the virus itself, it seems, as most of us will only suffer from mild, flu-like symptoms. The anxiety which is causing people to panic is due to uncertainty about the future. This is true of both private individuals and investors. Maybe collective hysteria combined with a lack of experience of similar situations is what is causing people to stockpile toilet paper and porridge oats instead of simply not placing unnecessary strain on the health service.

As things stand at present, it is impossible to forecast how this situation will develop and its potential consequences for the real estate industry. Much of the funding of the major real estate companies has taken place on the capital market over the last few years. Capital market players will reassess risk in times of crisis and borrowed capital will become more expensive. Development on the commercial rental market will also be tougher going forward. Add to that the fact that the value of real estate companies has been almost halved since mid-February, from an all-time high. Given these facts, some real estate owners are clearly facing some tough times.

In the situation we are in at the moment, where there is so much uncertainty and panic is not far off, it is easy to become caught up in despairing thoughts that outline one worst-case scenario after another. This is not all that constructive, so why not focus instead on the things we actually know.

 

Interest rates will drop and support packages will be offered
As we all know, low interest rates are like manna from heaven for the real estate industry. The Riksbank has supported bonds, reduced lending rates to banks and come up with a support package worth SEK 500 billion to start with. This support package will be used for short-term lending in order to save viable companies.

 

Property price index at the same level as one year ago

Of course, a 40 per cent loss in one month is an unprecedented drop. But it is easy to forget the level that we fell from – an unprecedented high. The property price index (fbindex) is currently at the same level as one year ago. Zero development in a year is not a particularly successful development, but neither is it cause for panic.

 

Unemployment will increase
We do not know by how much or for how long. Last Monday, the Government announced that they had devised a support package worth SEK 300 billion to be spent on enterprise with a view to saving as many companies and jobs as possible.

 

People still need places to live
The rental market will probably become an even more attractive housing option during a recession, while it will be more difficult for new homes to be let with ownership rights or tenant-ownership rights.

 

Social care properties still in short supply
The need for socially beneficial properties will be every bit as great as it was prior to the crisis.

 

Bankruptcies worse than lower rental income for a time

The hotel and hospitality industry, restaurants and some shops are facing tough times ahead, and as with unemployment we do not know how bad things are going to get. From both a social perspective and a real estate owner perspective, a period with lower rents and low-profitability companies is better than nothing.

 

Virus outbreak will come to an end
We do not know how long it will take, but the virus will be halted when we develop vaccines, and probably herd immunity as well. It was also announced today that a medication will be tested that aims to alleviate the problems caused by the virus, along with the fact that there may be a vaccine by the autumn.

To summarise: there will be an upside for real estate when we emerge out of the other side of this crisis, with low interest rates and ongoing shortages in some segments. Real estate with commercial tenants, particularly certain shops, restaurants and hotels, will experience tougher development in both the short term and the long term. There will also be changes for the better: it is highly likely that the budget segment will see a resurgence in a recession. The food industry is also guaranteed to see positive development in the short term as people visit restaurants less.

So what else can we do? I suggest we follow the example set by all our wonderful healthcare professionals; roll up our sleeves and start working instead of cogitating on just how bad things MIGHT get. The biggest threat to domestic economic development that is highly likely to affect the real estate industry is unemployment, which will create a vicious circle inhibiting both consumption and growth. What can we do, either professionally or privately, to save as many jobs as possible? As real estate owners, we can talk to our tenants to find out what would make their lives easier. Perhaps reducing their rents for a few months will save them.

All available premises