Until recently, we have witnessed a very vibrant real estate market in Slovenia, but the future was uncertain. On a weekly basis, we were faced with questions such as: If and when will the new crisis come? What is happening to residential and commercial property prices? Is now the right time to buy a property or is it a better time to sell? Are we facing the real estate bubble and is it more reasonable to wait for the prices to fall?
Ljubljana was the most active real estate market
In order to determine what might happen in the future, we must first analyze the past. The chart below shows the movement of prices of used apartments in Ljubljana from 2006 to 2019, taking into account the inflation. Based on the chart we can conclude with certainty that, prior to the covid-19 outbreak, the pre- 2008 crisis prices have not yet been reached.
The market prices are determined by supply and demand. If we focus on Ljubljana, the area with the most available data, we can say that there was a shortage of both residential and commercial real estate. This was mainly driven by favorable economic conditions, low interest rates, growth of tourism and increasing long-term and daily migration. Thus, the annual demand for housing units has not been met. Even with realization of upcoming projects in the next two years (more than 2.000 new apartments) the supply would still not meet the demand. The rental market was also affected by a huge increase in the supply of apartments for the purpose of tourist accommodations “Airbnb, Booking”.
What about commercial real estate?
Before the quarantine due to the coronavirus, there was a high demand for purchase and lease and practically no supply of quality and class A commercial properties on prime locations in Ljubljana. The vacancy rates in the best locations were close to 0 %. The investors reached yields around 7 % and the rents were around 15 €/m2/month or more.
First consequences of a declared state of emergency
Just over a month ago we could not imagine the current state. The “world” has stopped during the epidemic and most people are wondering how this will affect the economy and the real estate market. There are currently no new real estate deals or viewings, only deals from the time before the coronavirus outbreak are being closed. We are aware that the impact of coronavirus is already present and will continue in the future. The magnitude of consequences, however, will depend on the duration of the epidemic and the taken measures, which are currently unknown to us. Above all, we expect an increase in the supply of long-term rental apartments. The increasing supply is already noticeable. This is understandable since there are virtually no tourists and apartments intended for short-term rentals are empty. Nevertheless, we are not noticing any decline in rents yet, but we believe that tenants as well as buyers now have better negotiating positions.
Experience from China
Given that it is difficult to estimate the course of events in the coming days, weeks, or months, we turned to those who first encountered the coronavirus. We received first-hand information from a businessman in China, located about 500 km north of Wuhan, the origin of the new virus. He states that the current situation is much better. The infection only occurs at people returning from abroad, so authorities have assessed the risk as low.
The virus emerged in December 2019, but given that it was completely unknown, they did not take the situation seriously enough. Life was normal until the second half of January, when the lockdown of Wuhan was ordered due to the high infectivity and high numbers of infected people. Before the decree, people began to move to other cities, which caused the spread of the infection to other parts of the country. The authorities have taken drastic measures: isolation, stopping of all traffic in Wuhan and surrounding cities, mandatory wearing of protective equipment, cancellation of public events, fairs, closure of shops… Their world has stopped. After almost a month and a half, life is returning to normal, although most people still wear protective masks. They are still worried about the virus spreading again, so in the case of arrival from abroad, a 14-day self-isolation is mandatory and daily measurements of body temperature are required upon arrival at work and similar. The most important fact is that people follow the government’s instructions, which in Slovenia is not taken for granted.
Impact on China’s real estate market
According to our source, the impact on the Chinese real estate market has not yet been noticed. The market was growing steeply in 2015 – 2018 and was stable in the year before the epidemic. He does not expect a major decline in the real estate market since the Chinese market is interesting to both domestic and foreign investors. The fact is, however, that foreigners rely on US stock markets , where it is already clear that they have fallen, so the real estate market is also projected to decline too. According to our source, commercial real estate, factories, hotels, restaurants and similar will be subject to greater impact. Good practice has also emerged during the epidemic. Certain landlords have exempted their tenants from paying one monthly rent during the time of closure.
After two weeks at home
Since we have been waiting between four walls for two weeks and wondering when life will return to normal, we are definitely thinking about the consequences. In any case, the coronavirus pandemic will bring great changes to us and the world. These depend on the further course of spread of the virus and consequently the duration of the current and future measures. With all the economic changes, also greater appreciation of family life and free time will evolve.