The COVID-19 pandemic has caused too much pain and suffering in addition to disrupting various sectors. While the commercial real estate sector has remained resilient throughout the year, a ferocious second wave threatens to change everything, a change in the way people work, shop, and spend leisure time, owing to the pandemic, is the biggest threat to the $5 trillion debt boom in the commercial real estate sector.
Commercial Real Estate Contraction
According to analysts led by S&P Global Ratings Stuart Plesser, commercial real estate tops the lists of sectors vulnerable as the COVID-19 pandemic continues to cause havoc. Banks with big exposure to the sector in terms of loans are at great risk as default rates continue to edge higher due to harsh economic times.
Most banks are expected to withstand a projected 3% base case loss from commercial real estate. However, should losses hit highs if 10%, then most banks could be in big trouble given that real estate was the catalyst behind the 2009 financial crisis?
The Federal Reserve has already warned that lenders are at risk of experiencing an average of 6.3% loss in loans. The losses could end up hitting highs of 10.2% should the economic recovery end up being rockier. If losses were to hit these levels, then smaller banks with exposure to commercial real estate will pay a hefty price.
Booming Housing Sector
Amid growing concerns about the U.S commercial real estate sector, the housing market shows no signs of slowing down. The number of Americans buying new homes has already hit a 14-year high even as the country battles the highest unemployment rate owing to COVID-19. More people are buying houses even as prices grow at their fastest pace since 1991
Likewise, lenders are enjoying booming business as borrowers move to take advantage of the record-low borrowing costs. In the last three months, lenders have handed out $1.1 trillion in home loans. Increased lending has seen mortgage applications jump 50% this year, the highest level since 2005.
The U.S housing industry is so strong in part because millennials are increasingly buying new homes. Growing confidence that tens of millions of millennials will hit the home buying age continues to affirm the industry’s long term prospects. Home prices are expected to continue rising, given that the current supply is not likely to meet the ever-growing demand.
eXp World Expansion
Separately, eXp World Holdings has expanded its collaborative cloud-based real estate brokerage in India. The fastest-growing residential and commercial real estate company has been on an expansion drive. In addition to India, the company has already expanded its footprint into Canada, the U.K, Australia, and South Africa.
Expansion into India seeks to make good use of the country’s over 1 million real estate agents. India is also one of the most dynamic real estate markets in the world, likely to benefit from the eXp Realty agent-centric model.
In India, eXp intends to offer access to cloud-based brokerage and virtual technology to help deliver valuable marketing resources. The resources should help position agents for the future of the real estate.