Important Factors When Investing in Real Estate

The economy is grinding to a halt. Will the real estate market follow?

The spread of COVID-19—the disease caused by the novel coronavirus—was officially declared a pandemic by the World Health Organization on March 11.

In Sri Lanka, we have 718 confirmed cases and 7 deaths from this pandemic disease of COVID-19. Sri Lanka is fighting successfully with a very high recover rate and also doing many PCR tests per day in order to battle COVID-19. But after recovering from the COVID-19 pandemic, will Sri Lanka’s Real Estate market remain as it was before the pandemic?

Sri Lanka has an estimated tourism industry that is worth more than $4.5 Billion. Due to COVID-19, it’s falling rapidly due to the total shutdown in Sri Lanka to fight COVID-19. With the economy taking a big hit on the market, the Real Estate industry will most likely fall due to the recession that is forecasted to be faced by Sri Lankans.

Real Estate markets during previous pandemics and concluded that while home sales dropped dramatically during an outbreak, home prices stayed about the same or suffered a slight decrease. This makes intuitive sense because it’s harder for prices to change when there are few transactions. In short, previous pandemics have simply put the real estate market on pause.

Real Estate Market of the Capital – Colombo

With the Real Estate market going into the pandemic was, in a word, tight. Consider Colombo, where property prices have risen drastically as it has become one of the country’s leading tech hubs. Due to COVID-19, the spending on any property purchase will be stopped and all big investments are likely to be paused. But after fighting COVID 19, there will be a high demand for properties around the capital of Colombo.  

Nearly a third of home building material inputs come from China, not to mention more finished products like bathtubs, sinks, appliances, and more. These supply lines have been disrupted. This could delay home construction at a time when it has finally picked back up. Since the financial crisis, home building has struggled to keep pace with demand because of the cost of construction, lack of available land, and a construction labor shortage.

This is significant because it suggests that the demand for housing is still there—it’s just a matter of waiting for the supply to return to the market. Taken together, the housing market appears like it will spring back into action once the virus allows for it to function again.

However, given the timeline for a home sale is usually a few months, the recovery will likely be gradual as opposed to instantaneous, and any recovery will still be subject to the virus flaring up again.