#covid19 – The impact of the Covid-19 emergency on the Real Estate: Liquidity and Time the key factors of the market.

Covid-19 has deeply impacted the social and business dynamics of the whole planet with short, medium and long-term effects not always predictable. The Real Estate is one of the areas for which the true effects of restrictions and psychological involvement are not immediately evident, and the reason is in several factors including the timing of closings, the expectations of sellers and the need for market liquidity.

Analyzing the numbers provided by the official reports, specifically for the area of Miami, it catches the eye a rather remarkable decrease of transactions in the timeframe. Comparing, for example, the total of transactions (for Business, Commercial and Residential) closed between March and April 2020 and those of the same period of the previous year, we immediately notice an average decrease of 33%.


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This situation represents only a small part of the real impact of the pandemic on the market. We need to consider that the deals closed between March and April 2020, during the Covid-19 emergency, essentially concern the contracts executed between 30 and 90 days before (and in some cases even earlier). In general, the closing timing of a Real Estate deal can vary depending on the type and complexity of the contract, may depend on external financing, on the possible need for renegotiation during the due diligence and in general on a number of other factors which cannot be reduced to a closed list of cases.

Once an agreement has been reached between the parties, the basilar activities of inspection, due diligence, bank appraisal, may require an average time of 45-60 days, without considering any unforeseen events. It is still early so to draw conclusions on the impact of the pandemic on the Real Estate business, but there is another factor that can give a clue about the current reaction of the market, and is in the number of new listings compared to the same period of the previous year.


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According to the data, for the market players this is not the right time for a Real Estate sale, apparently they prefer to wait for the end of the emergency trusting that it is a short-period contingency. In this perspective, there is still no real price decline on a large scale, but only a contraction in the supply. However, in this specific and epochal circumstance, the contraction of the supply is not determined from an effective deficiency of the real estate product, that – according to basic rules of market – would make to raise the demand and therefore the prices; it is rather determined by an external factor, that on first impression seems to be neutral with respect to the trend of prices.

The reasons of this temporary neutrality are substantially two: the first can be found – as said – in the psychological attitude of the market players, who prefer to wait until the end of the emergency rather than suffer capital losses; the second reason is in the promise of government agencies to provide significant liquidity in the market. One of the basic reasons that push economic operators on the market is the search for liquidity, i.e. the possibility for the player to quickly convert the investment into money without loss of value. If the government and the media promise huge injections of liquidity, by means of tax benefits, cash assistance, debt suspension and extension of tax obligations, the player – who does not want to suffer losses – does not even feel the need for liquidity and therefore fails one of the basic needs that drive real estate transactions and the market in general.

Another Covid-19 factor affecting Real Estate is the objective difficulty, or the impossibility, for the investors to see with their own eyes the target of the investment. The “brick” is considered by many investors a “safe haven” because it has an intrinsic and “Real” value, it has the characteristic of having a tangible, inspectable and measurable physical connotation. The real estate investor, as well as the person who buys a property for personal use, feels the need to see and inspect the property, a necessity that at this stage cannot be met due to the imposed social distances and the fears of contagion.

Therefore, both sides of the Real Estate market are in a basically waiting phase: the offer waits for the negative contingency to run out, trusting in the promises of liquidity of the Government; the demand awaits the stabilization of the market and the possibility of being able to see and touch with hand the object of the investment. By summing up and analyzing the data, even if partial and insufficient, it seems we can say that the Real Estate market is substantially frozen, which is not necessarily a negative factor. If the government’s promise of liquidity is maintained, the need for liquidity will not increase excessively and prices will tend to remain stable. If, on the other hand, the liquidity injected into the social tissue and between the player is inadequate, the need to convert the real estate into money quickly will almost certainly cause a significant fall, if not a collapse, of prices.

Dominant will be the Time: the duration of the emergency will determine the ability of the market to remain harmless or limit the damage. Liquidity and Time are therefore the key factors to be observed objectively in order to guide the choices, in a situation of completely unknown and in an unprecedented market.


by Piero Ruggeri, Ph.D. in Law and Economics, President and Director more | Professional Group and Member of Scientific Community




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