Investing in real estate
By Darren Wall | May 4, 2020

Real estate is the best investment during turbulent economy

Is real estate the best investment? It may be something you’ve heard all sorts of developers and industry experts tell you recently, but is it really true? To answer that question; we’re going to take a look at the numbers and trends behind it. Afterwards, you will be able to see for yourself what’s happening in the world right now.

What makes real estate secure?

Every recession and period of economic turbulence has seen certain commodities plunge in value due to a sudden erosion of confidence. Whether it was the South sea Bubble, Tulip Mania, the Great Depression or the 2008 housing market crash, money has was lost when it was least expected. So, what makes real estate secure?

The key thing is that unlike many tradable commodities, real estate (property) is something that every single one of us needs on a daily basis. At the risk of oversimplifying: everyone needs a place to call home. That means if you make smart choices about where you put your money and are prepared to ride out a storm, you have an asset that recovers its value and grows over time.

 

The impact of reduced travel

The Chinese and Russian markets are two of the biggest when it comes to investing in overseas property, and that’s no different in Cyprus (1). Due to the COVID-19 lockdown that’s impacting virtually every country in the world at the time of writing. A significant number of the investor audience have disappeared almost overnight.

Russians are largely unable to enter or exit their own borders, while China has been in a state of internal lockdown since the end of 2019. What is beyond doubt, however, is that once the lockdown comes to an end, high net worth individuals from these countries will still want to find places to spend their money. That will drive up the value of properties around the world, making real estate a sector that’s sure to rebound towards the end of 2020 and into 2021.

How will the demand for office space impact prices?

With remote working now utilised by more than half of all professional companies, and demand for it set to rise as the lockdown continues (1). We can expect to see the demand for office space to fall. In some cities, pre-lockdown, we’ve seen demand far outstrip supply, leading to spiralling rental prices which then drive up property values (2).

Predictions on the projected value of office real estate developments are still in their infancy. They will be impacted heavily by the way the world decides to work as the pandemic recedes. What we can be sure of however is that there will still be a need for office space, but it may be significantly less than before well into 2021.

How does the fall in tourism impact real estate?

Tourism is at a standstill right now with virtually no flights or vacations proving possible. This will inevitably lead to a drop in the value of holiday rentals due to reduced rental yields. However, the market is not blind to the reasons for that.

It’s not that people no longer want to go on holiday, it’s that they’re not able to right now. What makes the current situation unique is the high degree to which traveller confidence will be impacted. For this reason, we can expect to see tourist income rates and travel expenditure lag behind growth in other sectors. As the world gets to work and pays down debt, taking a vacation will not be the first thing open to many people; with one notable exception.

High net worth individuals who have maintained a high degree of liquidity will look to use the lifting of the lockdown to explore new parts of the world. As they go in search of luxury real estate in highly desirable locations, places like Cyprus suddenly become even more attractive than they were in 2019. For this reason, we predict that real estate in highly desirable locations will rebound much faster than the norm across the industry.

How will low-interest rates impact the industry?

Interest rates have been cut to near zero in most countries which makes building savings more difficult. While this is something that will impact the majority of people, those with money saved or high net incomes will be significantly better placed to ride out the storm.

For this reason, we predict that the demand for luxury real estate will emerge relatively unscathed. As the financially secure individuals who would have invested pre-COVID-19 will still be in a position to do so.

Cyprus has a high number of luxury real estate opportunities per square mile compared to many other countries in the world. If you take the fact that UK sales have dropped by 60% with average sale prices down by 0.6% (4) since the start of 2020, you get a sense for how much the market is being hit.

When it comes to buyers getting onto the first rung of the property ladder, there will be slowdowns in construction and a drop in demand. However, proven investment schemes that lead to citizenship will still be open once normal business resumes.

What can you do to secure your future?

Investing in property is one of the smartest things you can do with your money, providing you do each of the following:

  • View your investment as a longterm opportunity, not a fast return transaction. Property becomes more valuable over time because of increased demand for properties in highly desirable locations. That means that provided you wait long enough, your investment will trend upwards
  • Understand your options when it comes to investing by seeking out ways to get more for your money. Investment paths to citizenship are an attractive way to give yourself greater access to more of the world while also investing your money in a way that works for you
  • Don’t rely solely on short term tourist income to set the value of your property, or to generate seasonal rental income. But also don’t feel pressured into buying into regions that appear to be doing well all of a sudden. Places like Cyprus that were highly desirable pre-COVID-19 will still be once the world is back to normal

If you follow these three things, you’ll be able to ensure that real estate is the best investment during any level of economic turmoil that’s to follow.

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