COVID-19 has made people more familiar with their homes due to stay-at-home and social distancing orders. But the pandemic has also thrown up many uncertainties and questions regarding the future of the property market – which is a significant consideration for people who wish to find fruitful investments during the pandemic.
If you are considering investing in real estate during these trying times, pause for a second. Research, the right tools (such as a real estate mobile app and mortgage calculators), and the right people can help you navigate these complex waters. Learn what you can about the market first before you decide on your investments.
Recessions Mean Lower Prices
Due to COVID-19, New Zealand entered its first recession for the first time in almost a decade. When a recession hits, house prices drop since the economy determines property prices; in particular, what happens to interest rates, business profitability, wages, and employment rates. Housing prices fall when there are few confident buyers and many keen vendors.
Once the pandemic is mostly eradicated, property sellers will be more flexible so that they can make a sale. This will lead to more discounted prices.
Some investors will, unfortunately, experience significant losses in the current market due to the fallout, which could be larger than the Global Financial Crisis (GFC) of 2007-2008. During the GFC, many high-risk investors lost a significant amount of money, and it’s likely the same scenario will play out this year for people with confidence in risks.
Is There Any Light During the Recession?
Fortunately, not all is doom and gloom during the recession. Low-risk investors who understand the importance of long-term planning will see the pandemic as an opportunity and strategically work to maximize their investments. Investors who will benefit from the economic downturn are those with strong cash flow, strong liquidity, and a list of well-priced assets. If you have these and use a clear investment strategy, you can be a smart investor during the pandemic.
When investing in real estate during the current climate, the first thing to mind is the location. Places hit the hardest by business closures will have more drops in property prices. These are areas that heavily relied on tourism to fuel the economy (e.g., Queensland).
Once borders reopen, however, migration can increase due to the country’s ability to contain and manage the COVID-19 fallout. During this time, property prices in areas with sparse housing, such as Wellington and Auckland, will spike back up.
The Advantages of Pandemic Property Investing
With mortgage yields and rates at historic lows, today is a great time to invest in property, especially when you have the means to do so. The recession might be harsh, but there are plenty of buying opportunities available for investors with strong balance sheets.
When you invest in property now, you benefit from the following:
Lower Interest Rates
Since interest rates are directly connected to property prices, fluctuating prices mean fluctuating interest rates. The competition between banks is fiercer than ever, so they will present a variety of attractive options so that you will choose them.
If the record-low interest rates remain the same, expect longer-term prices. Also, there will be an increase in property vacancies due to businesses closing, which results in cash flow issues for landlords. The lack of income will encourage property owners to sell at better buying prices.
Property Outperforms Bonds and Stocks
Despite the regulated nature of the stock market, it is still subject to a variety of risks, making it extremely volatile. If the country suffers from an economic setback, business stocks will suffer, as well. The economic cycle heavily influences the state of stocks. Other factors that impact stocks and bonds are tax revisions, monetary policies, and regulations.
If you rely on specific types of stocks or fail to diversify your holdings, you are up for greater risks.
Instead of investing in shaky bonds, go for resilient real estate.
Property Fundamentals to Remember
While investing in property during a recession comes with benefits, it’s not as simple as it seems. Before you settle on a property, remember a few fundamental principles:
- Be smart. If you have the resources to buy a property, you can get better rates on your mortgage than you would before the pandemic recession. Refrain from jumping on the first-rate lenders offer. Instead, shop around to get the best deals possible.
- Be patient. If you want to buy a property for a more affordable price, expect a long closing process. Banks and financial institutions draw out foreclosures or short sales, which can be frustrating for both the seller and the buyer. So extend patience in the situation.
Opportunity for real estate investments can still knock on your door – even during the pandemic. If you play your cards right and assess your risks, you can land a good investment that guarantees returns during and after COVID-19.