How are Europe’s property markets responding to the coronavirus pandemic, and what’s likely to happen when our lives begin to return to normal?

Sheltering at home in the face of COVID-19 has led to a new appreciation that our homes have not just a financial value but a significant emotional one too.

Faced with continuing uncertainty, we examined previous downturns to see if they offer any clues about how property markets are likely to react. We also explore how the sector is adapting.

Looking back

Our homes are a safe store of value – but the trend is not immune to economic downturns. The UK and French property markets suffered during the recession caused by the 2008 financial crisis, while Swiss property prices held steady during this period.

Politicians and policymakers can also have an impact. For example, the French market dipped after the election of President François Hollande in 2012, owing to his sharp increase in the tax regime. When the Swiss National Bank unpegged the franc from the euro in 2015, prime Geneva and Zurich house prices fell.

Low interest rates appear to have only prevented prices in prime central London from dropping further, and the decrease has mainly been driven by government policy. Mortgage lending restrictions were introduced in 2014–16 and uncertainty caused by Brexit has rippled into the property market.

Looking forward

Social distancing measures have slowed property transactions. Levels are forecast to be 40% to 50% lower than 2019, but this trend is expected to reverse fairly quickly. In the short term, prices in prime locations such as London, Paris and Geneva are expected to see only modest falls in value, ranging from 0% to 5%.

With the pro-investment backdrop in France and 90% of buyers and sellers looking to restart their house moves, the environment should support prices over the medium term. Enquiries from Belgian, Swiss and German buyers have been noted in the South of France.  Asia-based expats have also been looking for a holiday home in the region.

Prices in prime central London have been under pressure for the past five years due to government policy. Arguably there is less of a buffer for prices to fall when the lockdown is lifted and other restrictions loosened.

Over the long term, real estate has outperformed almost all other asset classes, and delivered returns that are less volatile than the stock market. Cornerstones of value, such as excellent education systems, should continue to underpin value in prime locations.

Changing landscape

Like many other areas of the economy, the property market is adapting to the lockdown. There’s already been an acceleration in the adoption of new technologies. The latest software enables potential buyers to take virtual property tours – even using drones.

The coronavirus pandemic is accelerating some of the digital trends that were already under way in property markets.
Over the longer term, the way we use property is likely to change. With air travel unlikely to be back to normal until 2021, homes that are easy to reach by road or rail look more attractive. European cities that offer lots of open spaces and quick access to the countryside have particular appeal. In the short term, travel restrictions are likely to encourage investors to look for opportunities in their domestic markets rather than overseas.

Restrictions on travel to stop the spread of Covid-19 are encouraging people to rethink what's important to them when buying property.

Seek specialised advice

It’s important to consider your financial goals and explore the options with your professional advisers so you can structure any property purchase in the best possible way. At J.P. Morgan, we can help you navigate today’s challenging environment and we have the capability to finance high-value residential real estate in certain jurisdictions.

 

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