A COMPARISON BETWEEN THE 2008 RECESSION AND THE EFFECT OF COVID-19 ON THE REAL ESTATE MARKET


By: Dr. Bashar Ahmadi

CEO
Orchid Developers

The 2008 financial crisis which heavily affected the real estate market and the current crisis from Covid-19 pandemic are very different.

Twelve years ago, in 2008, The Great Recession led to some of the highest recorded rates of unemployment and home foreclosures due to a crisis in subprime mortgage-backed securities, which spread to mutual funds, pensions, and the corporations that owned these securities, with widespread global impacts.

In all, the Great Recession of 2008 led to a loss of more than $2 trillion in global economic growth.In 2008, due to subprime mortgages, artificial demand in housing was created, meaning an oversupply of housing units. As an example, in Miami by 2008, there were 48,000 new units coming into the real estate market, while the actual demand per year was approximately 8000 units only.

Therefore, the real estate market needed five to six years to absorb the 48,000 units. However, during the Covid-19 pandemic we have slowed down the real estate developments and as a result the effect is on the contrary to 2008 recession.

I would like to emphasize that compared to the 2008 recession the losses of equity in the market is much less. There is equity in the market as we speak now, in fact, stock markets and bank equities are very healthy.

Due to travel restrictions and reduced entertainment outlets, individuals, with the exception of the hospitality, travel, and retail sectors, have more equity than prior to the pandemic. At Orchid Developers, we are managing over 1,500 units in the Kingdom

of Bahrain, and our records in rental show a slight reduction in rental during the pandemic. The sale market has been somewhat stalled since September of 2020.  We believe that the rental market will be steady and sales will be somewhat slower, not because of shortness of equity, but simply as a result of the psychological effect of uncertainty due to Covid-19

We believe once the pandemic is over, there will be high demand in the real estate market since individuals have more money saved during pandemic. Real estate in the Kingdom of Bahrain, is one of the few countries in the world which gives an average of 7-10% yield per year on the real estate investments, which is one of the highest.

It is very important that we as real estate developers monitor the number of units we are developing in order not to flood the market more than the demand. The key here is supply and demand.

This article was published as part of the fifth edition of Property Finder Bahrain’s Trends Report