The impact of COVID-19 on Turnkey Properties will not be long-lived
Real estate is an important sector of the economy. It contributes 6.2% to the USA’s GDP. The worth of real estate is determined by the region where the property is located and the asset class. This sector has been affected by COVID-19 in various ways. The impact of the pandemic has been most prominent in the following areas of real estate:
- Maintaining liquidity
- Preserving the base value
- Incurring the additional cost of adopting safety measures and following SOPs for various activities.
Each sub-sector within the real estate has been impacted differently. Some have borne a greater brunt than others. In this article, we will explore the overall impact of COVID-19 on the industry. Let us take a look at the long and short-term impacts of COVID-19 on real estate.
- Covid-19 has brought economic activity to a standstill. A bubble of uncertainty has been created which has deterred future investments. Tenants lack the resources to pay rent and are facing foreclosures in some states. Landlords are losing their passive sources of income as businesses are closing down on leased land.
COVID-19 has also created a state of uncertainty regarding the potential areas for future investments. Investors are unsure which markets are profitable to invest in. Since coronavirus spreads by human contact, people are reluctant to leave their homes and relocate to new areas.
- The real estate works on the principle of demand and supply. Whenever there is a demand for new spaces and houses, the real estate sector experiences a boom. Since the population is growing at a steady rate of 0.59%, there will always be demand for more houses and the market won’t go into a crisis.
However, given the negative growth of the economy, the buying patterns have changed. While people may not completely cancel the plan of relocating, they might postpone it.
- This delay can greatly affect the dynamic of the market and the liquidity. Along with that, compliance with the safety measures for all construction-related activities is an additional cost that has to bear by both the investors and buyers.
Covid-19 and Turnkey Properties
Turnkey properties, as the name suggests, are ready to move in houses. All you need to do is turn in the key and start living in the new home. Let us see how this pandemic has affected turnkey properties. The effect has been felt in the following three areas:
- Housing development has slowed down. The Covid-19 has instilled fear among people and work is not progressing as usual. Lockdown and curfews have slowed down the progress of construction-related activities.
- Secondly, because of the economic downturn, purchasing power has shrunk and people have halted their purchases. While people may be clicking and viewing your property online, these leads will hardly materialize. This means that actual liquid sales have lowered.
- Third and most serious concern for the turnkey industry is the banning of no-fault evictions. This means that given the situation of ‘crisis’ the property owner cannot evict the renter if the latter fails to pay rent. Since the economy has taken a hit, people are delaying the payment of their rents. Normally the owner can evict a person who fails to pay rent, but a ban on no-fault evictions prohibits them from doing so. This has greatly affected the liquidity of the property owner.
All in all, these are short-term impacts. The real estate sector will most likely not suffer from long-term impacts as demand for new housing will always be high. During these trying times, real estate and turnkey homes provide lucrative investment opportunities compared to other sectors of the economy.
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