How did COVID19 affected the real estate market?

The new situation with the corona virus has affected the entire economy in the Republic of Croatia and in the world. But this is not a classic economic crisis where there is a slowdown and decline in the market, this time we are faced with a blocked economy and the cessation of many industries. The real estate market has also been significantly affected.

In theory, during a crisis, demand declines, resulting in falling prices. It is a natural process that every economy goes through and actually the way it is balanced. Lower prices are always attractive to potential investors. Dubrovnik is an attractive location and many foreigners decide to buy a house or apartment in our city. Demand for houses by the sea and apartments with a view of the Old Town are particularly pronounced.

Unfortunately, for now, we cannot say that this scenario is taking place on the real estate market. In practice, it is a little different. Real estate prices have not yet started to fall, and some sellers are withdrawing real estate from the market with the words "it's not time to sell". On the other hand, customers now do not want to invest because they do not know what will happen and how long this will take. Concerns about personal finances, jobs and future income are high, and of course people are waiting and prices are starting to fall. However, due to the specificity of the crisis caused by the virus, we are also limited to visiting real estate. Closed borders, travel bans, collection restrictions, masks, gloves; all of it stopped the business.

Furthermore, a key factor in the real estate market is played by banks, i.e. lending. A blocked economy, unemployment and loans do not go together. Domestic people who are looking for residential real estate now cannot raise loans, and there is also a risk of losing their job. Epidemiologists are announcing a second wave of the virus in September / October, which makes people very skeptical. If the bank starts giving loans in this easing of measures and people manage to raise loans, what will happen in a few months? Will they lose jobs – income? How to continue to repay the loan?

The theory holds its own - prices will fall, but when and how much? At a time when prices are falling how much will people be encouraged if the economy continues to wait in quarantine? In order for the market situation to change, it is not enough for prices to fall, restrictions need to be lifted, all activities need to keep working because that is the only way for the economy to continue its natural flow. As long as the business is blocked and people are in quarantine, decline in price don’t mean much. In a way, we are all facing stagnation, so the real estate market is waiting for better times.