Just when we thought we were in the process of bidding farewell to the major wave of the pandemic, more and more ‘modern world’ countries are sadly rediscovering how fast COVID-19 can actually spread. We’ve seen it happen mainly in countries where lockdowns and restrictions are being lifted, especially in developed, democratic countries such as the United States, Western Europe and the Four Tigers of the Far East (Japan, South Korea, Taiwan and Singapore).
So, now that we know that we’re in this for the long run, how will it affect the way we invest in real estate? Experts have been cracking their heads at this for the past few weeks. I personally, Ofir Eyal Bar, believe that our look should be shifting toward another region for the time being and I will try to explain why – but most importantly where to.
“It’s the economy, stupid”
Bill Clinton’s presidential campaign made that expression famous almost 30 years ago and it’s as relevant as ever today. The real problem that the pandemic brought with it is a major shutdown of many economic activities. That may seem to have positive effects, since prices can go down in some sectors, but the problem is what happens when you look a bit further, meaning a year or so from now. People will always look for housing and the current slowdown in building is not encouraging real estate companies to lower prices today. On the contrary, some projects are just getting more expensive for investment with no good justification, meaning that in the long term they may not be worth it when considering return on the investment.
Add to all of that the fact that things are very unclear, especially in Europe. Construction and maintenance companies do not really know what limitations are going to be put in place tomorrow (and sometimes even today), leaving them with little ability to plan ahead. Overall, my advice would be to stay away from these markets for the time being – but check the pulse every so often, because things change rapidly.
Another BRIC in the wall
You don’t have to be an international relations major to understand the rising power of the developing world. Once there was a tiny club of ‘not-fully-developed’ nations that are superpowers regardless named BRIC (Brazil, Russia, India, China) but that group has certainly expanded. Today it includes other key players such as Mexico, Thailand, Turkey and South Africa (which some scholars have gone as far as adding to the ‘mighty four’ and calling it BRICS). The latter of the ones I have mentioned, I believe, has a vast potential for real estate investments today for a few reasons:
- Things have changed for the better. If you’ve been following the content I, Ofir Bar, publish here, you probably know I was hesitant about investing in South Africa in the previous months. Now, however, as restrictions are being lifted and the government is looking for ways to encourage foreign investments, the future of real estate there looks more promising.
- The COVID-19 situation there is pretty steady. No massive ups and downs on the scales, including a surprisingly low fatality rate, allow the government to plan ahead better. That way, the sudden decisions and restrictions are avoided.
- Prices are still relatively low. Remember, South Africa is not a rich nation and therefore investments there cannot reach the prices of Europe or the rich countries of the Middle East. On the other hand, the economic situation is stable overall, which reduces the chances of a failed investment.
Having said all of that, I need to remind you once again that things are very, very unstable in today’s global economy. What seems stable today can take a sharp hit tomorrow and as we’ve all seen, sometimes one ‘super-spreader’ of the COVID-19 virus is enough to bring a country’s economy down (and you can ask the South Koreans about that, they’ll tell you more). My advice is to always check which way the wind is blowing and to currently invest relatively small sums, due to the general unclarity.
I hope, above all, that you enjoyed reading what I have to say. Oh, and that you found it useful as well, of course.