The COVID-19 pandemic is now a truly global phenomenon, with 2.6 billion people (one-third of the world’s population) living under some form of voluntary quarantine. As people stay at home, the closure of offices and shops leads to a contraction in production and consumption areas, which negatively affect society and the economy in the short term. As the risk for human life will decrease after the pandemic and thanks to the economic steps taken during the pandemic will lead towards a fully productive economy again , It is worth spending some time to anticipate what this ‘new normal state’ will look like since the search for human needs and consumption will continue. China, which caught pandemic early and entered the normalization process at the earliest, gives us some visibility into what this might be.
The level of uncertainty in the global economy is at a high level. It is hard to make numerical predictions. The direction in which oil prices will evolve is another matter. The need for government rescue packages is at an all-time high, even in the most capitalist approaches. Although there is no global participation requirement, every country has taken important steps to try to support its people and their economies in this difficult period. The pandemic coincided with a recession period where global growth got stagnant, the geopolitical risk increased in regional war environments (Syria, Ukraine, Iran, and Afghanistan) and intensified against globalization.
First of all, countries restricted social mobility. Some restricted international passengers to forced quarantine. Some restricted air travels and others closed their borders (both domestic and international). Governments also closed schools and non-essential businesses and implemented or encouraged social distance. They allowed people to leave their homes/cities only in compulsory situations. Many countries banned meetings; although the maximum size of the allowed group varies from country to country, they increasingly recommended that they wear protective equipment, including facemasks, in public places.
Countries focused on testing as much and as quickly as possible to understand the full extent of the outbreak. Although some countries initially delayed the test regime based on approaches such as herd immunity, they are now trying to catch up. Through testing, countries tries to isolate individuals with mild and moderate COVID-19 cases as much as possible and provide intensive care treatment to those with severe symptoms. Countries also tried to increase hospital and intensive care capacities while increasing health equipment production (including masks, face shields, and ventilators). Some are speeding up drug trials and trying existing drugs that can be effective in reducing the severity of COVID-19. Meanwhile, a number of countries are speeding up research, development and testing of successful vaccine samples.
Impact on The Global Economy
Global growth has come to a halt. As global economic growth stopped after World War II and compensated its losses in 11 years, it is not difficult to predict that the effect of the contraction in the global economy will take an average of 10 years. Financial resources applied to combat coronavirus outbreak; strong, unexpected and involuntary social support measures, also the decrease in economic activity, have seriously disrupted economic balances.
With the determination of the spreading trajectory and impact of the pandemic, the second half of this year will become clearer with more data on the state of the global economy. It’s too early even for damage detection now. Experts can only compare this to World War II.
Many Central Banks, including the US Central Bank and the European Central Bank, have launched a “with all opportunities” approach to support monetary and banking policy through traditional and new measures. Although interest rates remained generally low, large central banks lowered their policy rates further. Interest rates are at low levels that have not been seen since previous global financial crises or new record lows. The scope of loan programs has been extended to alleviate the cessation of credit markets and have funded companies, including smaller and medium-sized businesses with lower productivity.
In order to reduce the impact of the crisis, governments aimed to fill the gap caused by the decline in the private spending of consumers and businesses, at least in part, by the record-breaking spending packages around the world. Some measures targeted end consumers, while others directed to companies in the hope that doing so would help prevent or reduce unemployment.
Although the data show that countries around the world is going and will go through similar experiences, the impact and timing will differ according to the countries. In Asia, where the outbreak occurred at the earliest, some countries are more advanced in reactivating their economies affected by the outbreak. In China, which has experienced an early and strong stop, the economy continues to renew slowly and cautiously. Although the risk of the reappearance of the epidemic continues, the world is carefully following the economic steps China will take, as in the fight against the disease.
Real Estate Investment Sector
Despite all this, even if there is a relative slowdown due to the decrease in human mobility in the real estate sector since the need for shelter is one of the essentials in Maslow’s hierarchy of needs, it is a sociological necessity that investments will shift to real estate as a more reliable port compared to other ways of investment and commercial areas. Human is always human.
However, it is a fact that there is a change in consumer habits and the way of trade. For example, the demand for online shopping has increased and this trend will likely continue. Those who saw the digital period as the 4th Industry phase were right. In this process, the sectors operating online will be profitable.
In this framework, countries around the world have implemented real estate policy changes to reduce the burden on tenants and, in some cases, homeowners:
In the U.S., many decisions have been made at the state and local level, and at least 34 states have temporarily forbidden those who have payment difficulties in mortgage systems to be evacuated by the banks. At the same time, the federal government issued a 120-day moratorium on evictions from Federal subsidized dwellings or a property with a federally supported housing loan. Major mortgage lenders, including Citigroup and JP Morgan Chase, suspended mortgage payments. Some US states have stopped construction on all projects unless necessary, such as medical facilities.
Many countries in Europe, including the UK, Germany and France, have suspended the evacuations due to the lack of mortgage payments. Some countries, such as the UK and Italy, provide mortgage assistance. Mortgages and rental holidays were offered to tenants in various locations, commercial businesses and residences across Europe. Some countries, such as France and Italy, suspended constructions. While banks in Europe were strongly encouraged to show tolerance and not to seize late payments, governments provided retailers with a tax cut.
In some parts of Asia, some landlords offered temporary rental discounts. Meanwhile, some countries, such as Singapore, are preparing legislation to protect commercial tenants who cannot pay rent for a six-month period.
Turkey is also one of the countries that supports the real estate sector. In addition to the similar measures above, the private sector also entered into serious cuts in prices to stimulate spontaneous sales. As I mentioned in my previous articles, this crisis also stands before us as an opportunity. It is time to invest and turn the disadvantage into an advantage. These days will pass. Those who are quick enough will win.
I offer my respects, greetings and love to all of our investors that we served with and got benefitted from our services until today, and wish healthy days.
Muhammet Torun
Trem Global CEO