Truth be told, as the fear of COVID19 strengthens its hold, and uncertainty grips markets, there are threats, but let’s not overlook the glaring opportunities on the horizon.
Firstly, for some residential property, rental income is a sure steady cashflow earner. Previous cycles have shown that when the equity markets become unstable, much of the capital pulled out of the listed equity markets makes it way to residential property. Investors want the security of bricks and mortar and this could be more so than ever before.
There is the valid worry and concern about exhausting available funds and savings that have been long stashed away, as well as actively looking for income earners even in the current climate. Rental property investments furnish a steady supply of cashflow, as come what may, apartments to live in will always be needed, folks would not sleep in the streets and people need a place to live regardless. The certainty and growth of revenue that a property can provide is a key to assessing its value and potential upside.
Poperties that are well-placed to take advantage of increasing values are those with fixed and escalating revenues, so that profitability increases with certainty (unless the tenant can’t pay their rent). Assets with leases of 12+ years, quality tenants and rent increases above inflation are ideal. They include office, convenience and non-discretionary retailing, and industrial premises tenanted by the public sector or major corporates. Owners of these assets are in a good position at this stage of the cycle.
Also, bear in mind that there will will be a return at some point when the curve flattens of pent-up demand for real estate from people who were unable or wary during the lockdown to go out and invest in various real estate investments.
Similar to occurences during the/at the bottom of the housing crash, real estate investors with a long view will find opportunities to pick up assets at distressed prices, Just as large funds stepped in to buy land and homes when values were depressed, we will likely see similar moves among the distress that is now taking shape. Such investors should be sure to make any such purchases with a studious eye and careful due diligence.
The number of confirmed virus cases flattened out in China, and China is starting to see a resumption of normal business activity. Data from some companies in China indicate that 65%-70% of small businesses there are open again, and 90%-95% of large manufacturers are operating again. This implies that the economic ‘restart’ could be quicker than after the housing and financial collapse from years before.
Like any economic disturbance, the Coronavirus will no doubt create both winners and losers. This is true for real estate sector, but those with patience, access to capital and an analytical approach will see a range of investment opportunities emerge.