Developers in the housing industry and COVID-19
Due to conflicting data coming from the market regarding the impact of the pandemic on the implementation of previously planned projects by housing developers, PMR decided to conduct a dedicated study in the second half of September 2020. Nearly 100 representatives of development companies participated in the study. What are the key findings that emerge from the responses?
More than one fourth of the respondents have not yet noticed the impact of the pandemic on the housing market
The percentage of development companies that have not yet noticed the impact of the coronavirus on the primary housing market is noticeable. Approximately 27% of the representatives of the surveyed companies believe that the development market has not changed. The remaining respondents have noticed such a change, but they differed in their assessments of the strength of this impact. The vast majority assume that the market will return to pre-pandemic levels. About 7% of the respondents stated that this process has already materialized. Nearly one fourth of the respondents expressed the opinion that it will happen relatively quickly, within a year. Only 2% of the respondents believe that the market will never return to previous levels, and COVID-19 has permanently disrupted its potential.
What supports the idea that the development market will eventually return to previous levels?
Among the surveyed representatives of housing developers, there is a wide range of factors supporting the return to the previous state. Several dozen factors have been mentioned. The most frequently repeated ones include:
- changes in credit conditions in banks (14% of responses),
- returning to normalcy (every tenth company).
The first factor hides the developers’ belief that banks, after the initial shock, will develop new risk assessment methods that will not excessively hinder lending activities.
The second factor is the conviction that consumers, institutions, and companies themselves will learn to live and operate effectively in the new conditions as the weeks and months go by. For 7% of the respondents, the situation was already returning to normalcy at the time of the study, so the return of the development market to previous levels was only a matter of time.
Since the majority of development companies perceive the impact of COVID-19 on the housing market, what is the impact of this situation on their current operations?
Among the housing developers who have acknowledged the limitations arising from the pandemic, two types of adaptive measures to the new situation were most commonly mentioned. More than half of the companies decided to extend the implementation deadlines for ongoing projects and/or delay the start of new projects. Less popular solutions included suspending new projects and/or land acquisition processes (in both cases chosen by less than one third of the surveyed companies).
It is worth noting that only one in ten respondents from the surveyed group indicated a complete abandonment of starting a new project. The results indicate that even among the development companies experiencing a direct impact of the pandemic on their business, this impact is largely limited and its effects are reversible.
What degree of delay in the implementation of current and initiation of new development projects will be caused by COVID-19?
Since we already know that among the development companies that have noticed the impact of the pandemic on the development market, the most common adaptive measures are the extension of implementation deadlines for ongoing projects and delays in starting new investments, it is worth investigating the scale of these delays. Is it a matter of weeks, months, or rather years? We also asked our respondents such a question.
| How many months were the project implementations extended? | How many months was the start of a new project delayed? | |
|---|---|---|
| 1-2 months | 8% | 15% |
| 3-4 months | 58% | 30% |
| 5-6 months | 31% | 45% |
| more than 6 months | 4% | 10% |
Note: Only developers who have taken such adaptive actions have answered the question.
Source: PMR study on a sample of approximately 100 housing developers, September 2020
As indicated by the responses provided by the respondents, the delays associated with COVID-19 primarily range from 3 to 6 months. Nearly 90% of the respondents whose companies decided to extend the implementation of current projects indicated this timeframe. The same timeframe was also indicated by three-quarters of the surveyed companies that postponed the previously planned start of a new project.
Summary of the study of development companies
The results of the study conducted by PMR among housing developers inspire moderate optimism. Although a large portion of such companies have observed a direct impact of the pandemic situation on their business, they generally assess these changes as reversible in a relatively short period of time. Any adaptive actions translate into delays of several months rather than abandonment or indefinite postponement of previous plans.
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Senior Construction Market Analyst