Investors remain confident in residential market
- Positive picture in March and April in particular
- Demand continues to rise as supply stagnates
- Provision of affordable housing is becoming even more important
Real estate advisor CBRE Netherlands notes that residential real estate, with an investment volume of € 2.0 billion, has remained the most popular form of real estate investment during the first four months of 2020, despite the current crisis around coronavirus. Based on current demand among investors, it is expected that the volume invested in the housing market may yet grow this year. Investors’ interest in residential investments remains undiminished. Despite a 35.4% drop in the volume of investment compared to the first four months of 2019, this period included one exceptional transaction amounting to € 1.4 billion. At the regional level, Amsterdam and Rotterdam in particular got off to a strong start to 2020 with record investment volumes, rising to € 575 and € 200 million respectively.
March and April were particularly strong months and saw transactions involving several large residential portfolios, with the largest transaction worth € 375 million. Residential transactions also performed well in comparison with the overall volume of real estate investment, particularly in April when residential investment accounted for almost two-thirds of the total volume.
Sentiment remains stable
Investors do not seem to have been put off by the outbreak of the coronavirus. Multiple housing transactions took place entirely within April, from initial offer to completion. And in terms of ‘asking prices versus offers made’, no change is evident compared with transactions completed previously. This indicates that buyers are viewing homes as a crisis-proof investment.
‘CBRE Netherlands notes many ongoing transactions that will be completed over the next few weeks and months. One trend we have also seen is that sometimes it is decided to delay bringing a project to the market at this point, and to extend the planning phase instead. Ultimately, that will make those propositions even more attractive to investors. To sum up, the strong foundations and the stable nature of the housing market mean that the demand for investment properties is expected to remain high in the longer term and may even rise further.’
Persistent shortage of supply
The outlook for the residential investment market remains positive, according to CBRE Netherlands. Demand continues to rise, and to exceed the available supply in the housing market, with particular shortages in the major cities. And despite the recent rise in mortgage interest rates, these rates remain low from a historical perspective.
However, the current crisis is causing problems in the construction sector. Although production has not come to a complete standstill, delays are likely. According to the Economic Institute for the Construction Sector (EIB), the number of building permits issued is also expected to drop to 48,000 this year, far below the target of 75,000. This means that the shortage of supply on the market will persist and the shortage of housing will continue to mount.
Renting versus buying
Unemployment is rising as a result of the current crisis, however, and consumer confidence has fallen sharply. This will affect the owner-occupier market in particular, since it will reduce both opportunities to buy and propensity to buy. This will create some interesting opportunities for investors in the rental segment. More households are expected to move to mid-priced or affordable rental housing in the short term, meaning that these segments will continue to attract investors. However, if unemployment rises very sharply, some impact on the rental housing market cannot be ruled out.
‘Falling construction activity and more people moving from the owner-occupier segment to the rental segment will push up the demand for affordable rental housing. However, financial viability – and the viability of new-build projects – continues to be a challenge, particularly due to the current cost of construction. Cutting corners on build quality is not the solution, because the demand is for good-quality homes for the longer term. So there will be even more emphasis on developing the right home products that can cater to the ever-rising demand.’