While there is still hope that the worst of the pandemic will be behind us by the end of the summer, there’s a growing community of scientists who say that it could rumble on, perhaps until 2025. That’s a heck of a long-time, and it is almost impossible to imagine governments putting economies on hold for that long. Instead, the world is going to open up again, but how investors plow their money into a property will change. There are significant changes ahead. But what are the property investment predictions? And how will it affect your investment decisions? Let’s take a look.
Investing In The Office Sector Probably Isn’t A Good Idea
Commercial property was booming before the crisis. Giant cranes were putting up large offices in global cities across the planet throughout the end of 2019. But COVID-19 is changing all of that, perhaps structurally.
Commercial property accounts for some 15 percent of the total property market in most western countries. Institutions and professional property managers own the vast majority of it, though there is some in retail investor hands. The office sector is just a fraction of that figure, but it can still make up a big chunk of portfolios.
The pandemic, however, means that companies are being forced to conduct full-scale work-from-home experiments. And a large proportion of them will likely continue to use them, even when the public health crisis comes to an end.
When that happens, demand in the already-beleaguered office rental market may see even further declines. Rental sales of commercial offices were already down 10 to 25 percent on where the industry hoped they would be in the run-up to 2020. Now it seems like things will get worse for property investment.
The Switch To Park Home Investing Is Going To Accelerate
The traditional brick-and-mortar residential rental market is a minefield for landlords. The high rate of turnover is the main issue. Something like 60 percent of tenants ends their contracts every year, necessitating the search for new ones.
Mobile home park investing, however, is a different ballgame. Under this system, the landlords don’t own the physical properties. Instead, they merely lease out land to people – the tenants pay for the accommodation. What’s interesting, however, about this setup is how it reduces turnover. Figures indicate the average annual churn is between 10 and 15, which is dramatically lower than the traditional rental sector.
The reason for this has to do with the costs renters face when they move home. Experts estimate that switching units cost the average park homeowner somewhere between $10,000 and $15,000 in fees, massively disincentivizing the move. For landlords, this is excellent news because it means a much more stable source of income.
Low Interest Rates Could Drive Residential Property Higher
Typically in a recession, you would expect prices to fall across the board, but that doesn’t seem to be the case when it comes to residential property – at least not this time around.
Central banks, including the Federal Reserve, have cut interest rates to their lowest levels since the global financial crisis. The falling cost of borrowing means that people will be able to take on more debt. And if they can do that, then property owners will sell them for a higher price.
We don’t know exactly how this will pan out yet because of the effect of the lockdown on demand. Prices may fall in the short term – especially during the third quarter of 2020. But if the central bank keeps interest rates low and makes borrowing cheap, then we could see prices recover quickly.
Inflation could also rear its ugly head in a way that supports the property market. With so many people being paid but so few goods being produced, what we have right now is a recipe for higher prices going forward. Again, prices are likely to bump up in the latter half of the year as people return to their old consumption habits. And that could see consumer and housing prices going up across the board.
Buyers Will Hold Back, Predicting Lower Prices In The Future
Most buyers aren’t stupid. They understand that recessions have a dramatic impact on prices in the property sector. So many are likely to hold back on purchases, even when the lockdown ends. This behavior could spell more pain for sellers who then face a tough choice between taking less money today and selling up, or sticking with where they are and holding out for recovery for property investment.
We’re already seeing something like this happening in Hong Kong, which was one of the first places outside of mainland China to see clusters of COVID-19 cases. Many commentators in the territory believe that prices will continue to fall once the crisis passes, just as they had been in response to the protests at the end of 2019.
Travel Bans Will Continue To Suppress The International Market
Brexit put a damper on the UK property market as international buyers reconsidered their purchases of properties in the nation’s capital. But now we’re likely to see a similar effect – at least at the top of the market – across the world. When people can’t travel, they have no incentive to buy second or third homes in foreign territories.
Remember, the lockdown mainly refers to keeping citizens in their homes. Even when it ends, it won’t mean a return to life as usual. Countries will still be blocking travel from other nations. And the international property market will continue to suffer. It could be a full eighteen months before buyers can travel between countries again.
Of course, most property managers wouldn’t have predicted any of this at the beginning of the year. The market was sending signals that 2020 was going to be a pretty mundane year. Now, though, there are bigger opportunities and risks than ever before with property investment predictions.
Where you put your money matters more today than it ever did in the past. Just trying to buy the market in times like these is probably a bad idea. You need to be strategic and think carefully about your long-term interests.