COVID-19 and Real Estate Policies Around the World

The implications of the pandemic are still not completely evident, and all global markets continue to struggle to anticipate its consequences. Just like other markets, real estate, too, is in uncharted territory. Various countries across the world have introduced special policies to counteract the adverse effects of the economic slowdown on tenants, landlords and homeowners.

The US

Construction has been stopped, and many states have banned evictions. In some states, in-person property viewing has been replaced by online presentations, which would ensure the continuation of business safely. The federal government issued a 120-day moratorium on evictions in the last week of March in a bid to protect vulnerable renters living in subsidised housing or in homes with mortgages backed by the government. In a few states, like Delaware for example, not only have evictions been barred but renters who have lost their jobs due to the pandemic stand to receive US$ 1,500 from the government.

March also saw the Department of Housing and Urban Development (HUD) announcing a 60-day foreclosure and eviction moratorium for single-family properties insured by the Federal Housing Administration (FHA). Currently, there are around 8.1 million FHA loans and the move would ease the pressure off many first-time homebuyers with nascent credit histories.

Borrowers can also take heart with the release of The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allows them to defer their payments for up to a year. Again, this is only available to federally supported loans. However, many states are working with lenders to offer much-needed relief to borrowers who are on non-federally supported mortgages.

Canada

Across in neighbouring Canada, the Canada Mortgage and Housing Corporation (CMHC) will introduce the Canada Emergency Commercial Rent Assistance (CECRA) programme in mid-May, aimed at helping small businesses and landowners who are struggling to pay rent.

The programme allows eligible property owners to request for forgivable loans that will enable them to pay up to 50% of the gross rent for properties let out to small business owners. The loans are available for the months of April, May, and June 2020 and can be availed if the property owner reduces the rent payable by at least 75% and the tenant is responsible only for the remaining 25%. However, there are questions around the programme that remain to be answered giving rise to ambiguity and hesitation among property owners to participate in the programme. Additionally, there is uncertainty around landlords who don’t have mortgages and the government is working out alternatives to address this segment.

Europe

Europe, on the other hand, seems to have a clearer set of policies. Several countries have similarly banned evictions and have extended mortgage and rent holidays to both commercial and residential tenants.

In Germany, for instance, commercial and residential tenants are protected from eviction and businesses cannot be forced to forfeit their lease if they miss a payment.

The UK has gone one step ahead and have made businesses in the retail, hospitality and leisure markets  eligible for cash grants per property from the government while commercial tenants can benefit from a moratorium on their rent until 30th June 2020. Homeowners with mortgages can request for payment holidays while house possessions are indefinitely suspended.

Italy has had to go many steps further with economic relief policies due to the incredible spread of the virus in the region and has introduced a host of measures under the “Save Italy – Decree”. To encourage the maintenance of safety standards, for example, the country has introduced tax credits of up to 50% of sanitising costs and devised measures to make up for requisition costs of properties that have been converted for medical use. The owners of such buildings will receive 0.42% of the market value of the property on a monthly basis up to 31st July 2020. Retailers, too, who have suffered a massive setback during the crisis will welcome the tax credit equal to 60% of the property rental available to them.

Spain, also reeling from the aftermath of Covid-19 like Italy, has introduced tax deferrals and other measures in different states along with a moratorium on mortgage payments and extension on lease terms.  

Asia

China, like Italy and Spain, is one of the worst hit countries in Asia and has introduced several measures to battle the fallout of the pandemic. Businesses that have experienced heavy losses will be eligible for exemption from Urban Land Use Tax and Real Estate Tax in addition to rental and management fee reductions, which will doubtless  bring immense relief to tenants. Many have also signed temporary contracts to reduce annual rents but there is much more needed to be done for the Chinese property market to bounce back strongly.

Investor and occupier sentiment in the Singapore real estate market has been relatively strong and hopes to be able to better absorb the economic shocks of the pandemic with incentives for property owners. S

Singapore passed a COVID-19 Act that prohibits landlords from terminating leases if the tenant is unable to pay rent. Under the new Act, landlords are also required to pass on their property tax rebate amount to the tenants on the respective properties without any conditions.

Construction and supply contractors will be let off from the liabilities of the terms and conditions of their contracts if they are unable to fulfil them. Temporary relief has been provided to hospitality and retail property owners with property taxes being slashed for all retail units in malls and other spaces, and the benefits passed on to tenants.

Middle East

Although, Middle East markets have been relatively stable amidst the spread of the pandemic, countries have taken swift action to counter its effects by enacting a range of measures.

The UAE Central Bank has introduced a 5% raise in the LTV ratio on mortgages to reduce the pressure on first-time homebuyers who are one of the most vulnerable groups in real estate.

Abu Dhabi has removed real estate registration fees till the end of 2020 along with commercial tawtheeq (tenancy contract registration) fees. Land leasing charges for industrial purposes have been reduced by 25%, and a 20% rent rebate has been offered to tenants belonging to tourism, entertainment, and food industries. Private property firms like Aldar Properties and International Capital Trading have introduced additional supportive measures like monthly payment plans for residential tenants, and waiving of late payment and management fees.

Similarly, Dubai has allowed deferral of rent payments for up to six months and introduced an instalment system to spread out the payments while evictions were suspended for March and April, which will offer relief to tenants.

Australia

Most states in Australia have taken definite steps towards bringing peace of mind to commercial and residential tenants and property owners. Many have banned evictions for the next six months if tenants have lost their jobs.

The state of Victoria even announced a US$320 million rent relief package for commercial and residential landowners and tenants. Along with evictions, increases in rent will also be forbidden for the next six months, which will ease the pressure on renters. Not only that, tenants who continue to spend at least 30% of their income on rent, among other criteria, stand to benefit from a US$50 million rental assistance fund introduced by the government. Landowners will be eligible for a 25% discount on land taxes if they have eased the pressures of rent on tenants impacted by the pandemic while the remaining land tax amounts can also be deferred up to March 2021.

The government of New South Wales has reduced land taxes by 25% for commercial landlords and can be claimed as a refund. Refunds are decided on an individual basis and capped at a maximum of 25% of the landlord’s land taxes for the year.

Banks in Australia are also doing their part and have announced measures to defer home loan payments by up to six months to help borrowers who have lost their jobs or taken pay cuts.

Conclusion

Despite the brisk steps that governments have taken worldwide, developments remain in flux and the future of real estate continues to remain uncertain. India, in particular, is on shaky ground, nagged by the housing crisis and regulatory changes that it has seen in recent times. Encouragingly, commercial and retail activity has started picking up, ever so slowly, in a few countries including India. But will it stay a steady course? Only time will tell.