Over the past week global stock markets have suffered some of their largest single day losses in living memory. The Dow Jones Industrial fell 10% on Thursday 12 March and rebounded by 9% the next day, however, the S&P 500 is now down 20% from its 2020 peak. As we all assess the fall out and are no doubt glued to various news feeds, there are many things going through real estate investors heads. For those without a property investment strategy, I suspect the top three are:
- Wow – I am happy to be invested in property
- Should I panic?
- Should I be thinking about buying
We are clearly in unprecedented times and for many these will be highly concerning. First, let me start by giving you some positive coronavirus news:
China has closed its last coronavirus hospital as there are no longer enough new cases to support them
Doctors in India have been successful in treating coronavirus. Combination of drugs used: Lopinavir, Retonovir, Oseltamivir along with Chlorphenamine. They are going to suggest same medicine, globally
Researchers of the Erasmus Medical Centre claim to have found an antibody against coronavirus
A 103-year-old Chinese grandmother has made a full recovery from COVID-19 after being treated for 6 days in Wuhan, China
Apple has reopened all its 42 stores throughout China
A Cleveland Clinic developed a COVID-19 test that gives results in hours, not day
Good news from South Korea, where the number of new cases is declining
Scientists in Israel likely to announce the development of a coronavirus vaccine
A network of Canadian scientists is making excellent progress in Covid-19 research
A San Diego biotech company is developing a Covid-19 vaccine in collaboration with Duke University and National University of Singapore
Whilst the property market has not been dramatically impacted by the coronavirus, there is no doubt that it will be affected, over the coming weeks and months. It is times like today which underline why residential property investment should be the cornerstone of everyone’s long-term investment strategy.
Unlike the stock markets where investors have seen huge amounts of capital wiped from their portfolio, real estate markets simply don’t move in the same volatile way. Real estate markets have slow moving assets which do not have wild swings in value. Whilst the long-term impact of coronavirus is unlikely to be felt by the residential property market, the short to medium term impacts are likely to be the following:
Where deals are currently underway – there will no doubt be some wobbles and some investors will become skittish and retreat from deals.
Obtaining mortgage debt will become more difficult as there will be some level of withdrawal of banks and therefore the liquidity they provide, additionally surveyors will have some regard to the impact of coronavirus when undertaking their bank valuations.
Transactions will be slower over the coming weeks and months, particularly for domestic sales markets as developers will have to close sales and marketing suites and in the secondary market purchasers are likely to be concerned about visiting people’s homes.
Medium Term Impact
In the new build market – there will no doubt be some impact to pricing as developers seek to discount to find a level where transactions take place.
Secondary sales markets will likely take longer to recover as domestic confidence is hit – in these dramatic market events it is generally investors who will lead the recovery.
Supply of new housing will slow down which will underpin and stabilise values as in most markets there remains a housing supply shortage.
Rents will most likely strengthen as first time buyers retract from the market and look to rent for longer.
Investors and owner occupiers with fixed term mortgages coming to an end may be able to secure new fixed term mortgages at lower rates.
So, what do I do?
For those currently in the market, there is no overwhelming reason to buy right now, nor is there a good reason not to. If you were looking to purchase previously, perhaps now is the time to pause and let the dust settle before you rush to any specific decision. For those who were part way through a transaction, there is no immediate reason to think you should not go ahead, the main thing to do is check with your bank to ensure that they their mortgage offer still stands.
For existing landlords, make sure your tenants are ok – it is far better to work with a tenant who has some short-term financial constraints than try and replacement them. Not only is that the right way to behave as a professional landlord, but your costs will be far lower in the long-term. Likewise, if the lack of income does have some short-term financial impact speak to your bank. They also know it is far better to work with financially stressed landlord’s than have a whole bunch of secondary properties to sell!
Have a Property Investment Strategy
Perhaps most importantly current events underline the need to have a clear investment plan, this will have two advantages:
- When unforeseen events occur, you won’t panic you will have a clear sense of what your long-term objectives are and how to react in order to ensure they are met; and
- When the dust settles, and opportunities present themselves you will have a clear idea of what you are looking for and therefore how to react
All good Property Investments Plans should include the following.
Market Information – access to market information, it is impossible to make an informed decision without access to independent and transparent information. As an investor you need to find ways to acquire real-time sales and rental data, it is impossible to make informed decisions without this.
Risk Profile – an understanding of the risk you want to take and the rewards you seek for it, as well as the risk the profile associated with different types of investments. For example, in the secondary market what are risks associated with maintenance and repairs. For new build are rents and values based on future forecasts? Or are your numbers based on today’s market – investors should not buy ‘hope value’.
Costs – as a rule people underestimate costs associated with property investment. You need to understand what costs you are paying for. For example, how much of the cost of an exhibition are you paying? Are you buying through a referrer or runner – how much are they getting paid?
Network – have a network of agents and market participants who you can call on to help provide access to information and assist you with decisions.
Financial Model – generally investors overestimate returns and growth and underestimate costs, doing this will only make your investment look good on paper! Have a model which allows you to stress test growth and cost assumptions.
The reality is if you can have a clear understanding of all five items above you don’t need anyone to tell you if today or tomorrow is the right time to buy, or indeed if you should buy at all? You will have a clear understanding of what you need to do at any given point of time. And even better a sense of calm in situations like now.
You may also be interested to read: Why it’s important to understand risk to get the best deal when buying your next property