This year has been a rollercoaster for every industry as global economies are expected to shrink significantly throughout the end of the year. The Covid-19 pandemic has created an unprecedented crisis for the real estate industry. The longer this crisis persists, the more likely we are to see transformative and lasting changes in behaviour. Over the past several years, real estate investments have generated steady returns and cash flows outstandingly above traditional sources of yield, with only slightly more risk. However, real estate players have been hit hard across the value chain since the virus outbreak.
Many developers are struggling to obtain permits and they face construction stoppages, delays and potentially shrinking rates of return. The real estate sector is likely to see an increase in supply as developers and occupiers look to liquidate their property in a bid to raise funds to keep their business afloat, potentially reducing selling prices further. Investors’ speculation on the appreciation of land prices has reduced due to the pandemic, thus leading to the lower setting of prices.
A survey by African Property Investment (API) Summit and Standard Bank on the impact of Covid-19 on African real estate shows that the pandemic has intensified the liquidity crisis in the sector, hence an increase in sale and leasebacks. furthermore, there is an expected increase in individuals seeking to monetise their owned real estate and inject much-needed liquidity into their businesses. According to global audit firm PwC, individuals and companies monetise their existing real estate assets through transactions such as non-recourse financing, sale-leaseback transactions and real estate investment trusts (REITs).
“The supply of advertised land is likely to increase as people move to liquidate their holdings to free up cash. On the other hand, individuals are more likely to hold on to other properties due to their income earning status,” said Sakina Hassanali, Head of Research at HassConsult. She expects distressed landowners to liquidate their holdings leading to a greater supply of land during the pandemic to further accelerate the reduction in prices.
Rental yields are expected to decline significantly from the 1.61 per cent margin in gains made over the first quarter of the year. The report said the real estate industry would face an acceleration of pre-Covid trends. Developers and investors across different asset classes are considering several potential long-term options to the effects of the Covid-19 outbreak and the required changes that these shifts are likely to bring on the real estate sector.