Every sector has been affected by the global spread of the coronavirus, including healthcare, travel, education, food, and so on.
In terms of luxury real estate, there is a downturn in those looking to view and buy properties, as people are forced to focus on more immediate concerns. There are also concerns that even the agreed-upon deals would be canceled as buyers are uncertain about the turn of events.
Let’s have a look at how the novel COVID-19 pandemic is impacting luxury real estate in detail.
Buyers walk away from luxury property deals due to COVID-19
Since the COVID-19 put the city on lockdown, Frances Katzen, one of New York’s leading luxury property brokers, said she has already lost $80m in sales in a week as per Financial Times. And though she has recovered $58m, including a $20m deal for a closed penthouse, most of the buyers are nowhere to be seen.
The developers in New York City are afraid that if the shutdown continues, not only will there be no potential buyers, but those who have already agreed on deals and are yet to close them will abandon ship. It might also cause lenders to look for an alternative as developers fail to hit sales milestones that were agreed upon while availing the loan.
In another report of Yahoo Finance, it was stated that in Manhattan, New York, for four straight weeks, only two contracts were signed for properties that were sold for at least $4 million during the week ending April 19. The numbers have not changed since the week ending March 29, as per local residential brokerage Olshan Realty Inc.
The lockdown has put the real estate market on pause during what was likely to be the busiest season for the industry. Though New York has declared relaxation on certain essential residential real estate functions, the damage has already been done on the luxury property market.
The new listings for all price points in New York City have gone way down according to Yahoo Finance YFi PM reports.
Affordable luxury homes are performing well
As per Forbes, in Chicago, while reasonably priced luxury homes in the $750,000 price range are performing well, in the luxury market, there are no showings on anything. Buyers want to take a step back and see how things turn out.
Reportedly, in early March, in San Francisco, Joel Goodrich, with Coldwell Banker Global Luxury, had some showings for properties priced above $20 million. Still, the super-luxury segment ceased over the weekend. Buyers are only looking for homes in the $1 to $4 million range as per Goodrich.
First-time luxury property buyers have been out of the market since the early stages of the pandemic. Not surprising given most first-timers are more risk-averse.
International interest is plummeting overall
As travel restrictions have been implemented to slow the worldwide spread of the novel COVID-19, it has complicated and even blocked foreign buyers interested in buying U.S. properties.
Reportedly, a Singaporean client who was in the course of purchasing a Hollywood Hills home in California, priced at about $14 million, walked away. The homebuyer was restricted from traveling to the US for property inspections.
As per Hale from realtor.com., in the short run, probably, the prices of luxury homes will drop off a bit in international interest, but people in other countries are looking for a safe place to invest their money will fall back on the United States. Thus, in the medium to long run, the chances of improvement are there.
For the US, China has been the primary source of foreign demand for real estate, according to Lawrence Yun, chief economist at the National Association of REALTORS®. Thus, the high-end market is anticipated to be softer.
As per NAR reports, from April 2018 to May 2019, Chinese international buyers spent $13.4 billion on U.S. property. Buyers from China have had the most significant presence in California and New York markets.
The chief economist of realtor.com®’s, Danielle Hale, said that in the short term, the COVID-19 could dampen high-end sales further.
Real estate goes remote
Even as the majority of the state and local governments have deemed real estate an essential service, allowing offices to remain open in theory, the businesses are being conducted remotely.
Many real estate agents are leveraging technology to provide virtual tours, drone footage, and 3D floor plans to potential buyers looking to take advantage of low mortgage rates. It helps limit face-to-face interactions and keep the buyers and agents themselves protected.
Restrictions on open houses
Getting buyers into the home and terms of engagement has changed. There are restrictions on the frequency of visits and duration, and homebuyers are required to pre-register themselves. A total ban has been put in some buildings, as per The New York Times.
Potential buyers are made to exchange their shoes for booties before they start counting closets and make sure not to touch anything like the countertop, door frame, doorknobs, or kitchen and bathroom fixtures.
As per a survey conducted by the National Association of Realtors, before many businesses and schools closed, 25% of sellers nationwide had already altered the way they engage with potential buyers because of the coronavirus.
Buyers were required to make a stop at a hand-washing station and sanitize. In some cases, buyers had to leave their shoes at the door and wear boots.
Also, buyers, merely coming to educate themselves about the market, were discouraged as sparse attendance is the goal.
For instance, the board members of a building on Central Park South made a rule that open houses would be restricted to two open houses per allotted time slot. Furthermore, it was limited to weekends between the hours of 9 and 5. And all attendees were asked to sign in at the concierge desk and produce government-issued identification.
Many real estate agents report that open houses are just a magnet for a crime, with the benefits being minimal for sellers. "Real" buyers will schedule showings for properties they want to view with a real estate agent.
Future of luxury real estate
Will things take a better turn? Only time can tell. The global spread of the pandemic is the most significant public health emergency of the 21st century so far.
The COVID-19 had hit just when New York’s luxury market was regaining its footing after it had held back for a year due to a surplus of supply and the disappearance of Chinese and Russian buyers owing to geopolitical tensions.
Hopefully, the pandemic will ease, and things will turn to normalcy soon. Even then, the real estate luxury market will have a lot of catching up to do. It begs the question should you buy a home during the convid19 pandemic.
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About the author: The above article on how the Coronavirus is impacting real estate was written by Richa Parmar. Richa is an architect and passionate in the field of designing and creativity. Her inclination towards nature has made her take up a lot of challenging assignments in the subject of “landscape” and also has compelled her to start writing blogs. Presently she works as a Senior Manager cum Architect Blogger at GharPedia portal.