Transparent real estate prices as a beacon in times of uncertainty
Like most sectors, the coronavirus also impacted the Belgian real estate market. Due to social distancing measures, a traditional sales process had become temporarily impossible, which led to a significant decrease in real estate transactions in March and April. The impact on house prices remains difficult to estimate, but there is no doubt that buyers and banks will be more cautious in the coming months. With a publicly available history of real estate transactions, the government can, more than ever, offer a transparent reference framework to the various actors in the housing market.
Until a few months ago, Belgian real estate found itself in a “seller’s market” with demand often exceeding supply. Prices were on the rise, homes sold quickly, and in some cases, this even resulted in situations where buyers sometimes paid more than the initial listing price. After the introduction of the COVID-19 measures mid-March, the demand side has virtually disappeared for two months. The real estate market came to a temporary standstill, which is highly exceptional and only occurs during wartime. An economic recession can slow down the real estate market, but it usually never comes to a full stop.
Since mid-May, real estate visits are allowed again, which is the first step towards a normalizing market. The exact impact of the corona crisis on property prices remains challenging to estimate. Should we expect a quick recovery, or rather a price correction? Will there be a sudden increased interest in houses with a garden at the expense of apartments? We can safely say that future real estate activity will come with increased uncertainty for private buyers and banks. As for any uncertain market, it will be interesting to see how market prices will react. During the next couple of months, in particular, buyers and banks will have to take a certain leap of faith. Listing prices are likely not to adjust right away as sellers will stick to their pre-corona crisis price expectations. However, everyone will want to avoid paying or financing too much in a potentially stagnating or even declining housing market.
All parties involved in a real estate transaction need, now more than ever, guidance on which they can fall back to evaluate the market value of a home. There is no better reference framework than an overview of historical transactions, offering immediate insights regarding similar properties in any given neighborhood. This data exists. By making it publicly available, the federal government of Belgium can provide a valuable resource to put the housing market back on track.
A potential home buyer (or seller) will get a better view of the prices that have been (not so) recently paid for similar properties in the neighborhood. Transparent real estate prices will offer buyers and sellers a form of confirmation or, if necessary, serve as a “reality check”. In either case, they help pave the way towards a transaction by removing some of the uncertainty. In the end, it is all about letting people buy homes again.
Mortgage lending will also benefit from increased price transparency. Banks are crucial since there is no real estate market without real estate financing. In a typical mortgage loan application, banks evaluate the repayment capacity of the borrower and the value of the property it finances. With more data to estimate the correct market value, banks have a better view of their credit risk, allowing them to adjust their financing conditions accordingly; this can result in a higher interest rate or a lower borrowed amount. At first sight, this does not seem favorable for the borrower, but it certainly is when you consider that the alternative for a bank is not to provide any financing if there is too much uncertainty.
Under the impulse of various European directives (PSI and INSPIRE) in recent years, Belgium has harmonized many data sources and made them publicly available. Open data is not new. In theory, a rapid release of historical transaction prices is possible: the data exists within the Belgian Ministry of Finance (service of “Patrimoniumbeheer”), and there is a legislative framework. Belgium could get some inspiration from France with last year’s launch of its open data portal containing a history of all real estate transactions of the past five years.
The normalization of the real estate market will depend on many different factors. Publicly available transaction prices are not a miracle solution here. It is a concrete initiative that is relatively easy to realize and will contribute positively to the pricing of the real estate market. In uncertain times, this can, even more than usual, provide additional guidance to buyers and banks and help them with future transactions.