What will global property markets look like after the COVID-19 pandemic? I do not believe we’re going to see 40% to 70% drops like we did in the wake of the 2008/2009 global crisis when real estate markets worldwide took huge hits with few exceptions. However, localized markets and individual properties will experience those levels of price reductions, even if only in U.S. dollar terms.
That is to say, one of the biggest opportunities created by the current crisis is going to have to do with supercharged U.S. dollar buying power. The Colombian peso and Brazilian real have weakened significantly against the U.S. dollar since the virus crisis began. These countries are oil exporters and commodity producers. The values of their currencies depend on their abilities to sell those products on the global market in dollars and then trade those dollars back into pesos and reais. Will the Colombian peso or Brazilian real return to pre-virus levels once the crisis abates and oil prices begin to recover? Probably. Meanwhile, properties in these countries will stand out as crisis-level buys for U.S. dollar holders.
Short-term rentals are a key element of any global property portfolio, a top choice for generating diversified cash flow overseas. What’s the post-COVID-19 picture for this asset class? The vacation rental business disappeared overnight when borders closed and planes stopped flying. Hotels are being converted to hospitals in some countries. Short-term rentals are being relisted as long-term. That’s one benefit of owning a furnished rental. You can reposition it according to market demand.
In Dublin, Ireland, the available inventory of long-term rentals jumped 83% in March 2020 compared with March 2019, while short-term rental listings on Airbnb fell. Since the advent of Airbnb, many cities have seen sharp declines in long-term rental supplies, increasing the cost of housing for locals. In an active tourist destination, a short-term rental can produce a much higher net yield than a long-term rental. Now we’re going to see a dramatic shift, which is good news for locals looking for affordable housing.
You can easily switch a rental from short- to long-term in a European city, but making a change like that won’t get you far in a resort town like Playa del Carmen, Mexico, where’s there’s next to zero long-term rental demand. Expect, therefore, to see hugely discounted vacation rental prices in destinations like Playa del Carmen when people begin traveling again. Also expect to see properties for sale at discounted prices from owners who either need to sell their investment real estate to shore up their personal financial situations back home or because an extended loss of cash flow has put them behind on their mortgage payments.
As I remind you (and myself), leverage is a double-edged sword. You may not have to worry about whether leverage would be a good idea for your property investment overseas for some time after the world starts up again. Banks in countries where financing has been an option for foreign buyers will be focused on helping locals recover first. I think institutional financing options, therefore, for us foreign investors will become thin on the ground for a period.
On the other hand, I also predict that we’ll find sellers and developers more open to more creative terms than they’ve been in a long time, especially in Latin American markets dependent on foreign buyers. Look for buyer’s market windows in Panama and Belize, for example. Some markets in Europe are already experiencing broad real estate price drops. Greece is on top of the list. I believe this country will represent a bonafide blood-in-the-streets opportunity.
Additionally, I expect prices in Portugal, where values had appreciated significantly between 2015 and 2019—particularly in Lisbon, Porto, and Lagos—to soften and perhaps to fall when pent-up supply is released after Europe reopens. The window of opportunity here, though, will be short.
Real estate investment funds are sitting on cash they were looking to invest pre-coronavirus crisis. They’ll want to invest that capital as soon as they’re able. While these funds typically look for big deals, they might also work with real estate agencies to buy blocks of inventory if the prices are right. At the same time, individual investors will come off the sidelines once they can begin traveling again. Do your market research now and be prepared to act quickly when the world’s borders are again open.
While short-term rentals are producing zero cash flow during the global shutdown, agricultural properties are still growing food, and people are still eating. This all means that crops need to be harvested. Countries like the United States and Germany rely on migrant workers for their harvests. With borders closed, farmers in these countries are worried about how they’re going to be able to bring in their crops before they rot in the fields. In the countries I’ve recommended you consider for turn-key agriculture investment—Panama, Argentina, and Brazil—farmers don’t rely on migrant labor. One more benefit of diversification.
The most resilient part of any real estate investment portfolio during the crisis will be timber. Trees don’t care about a virus. And, even with less attention from caretakers during the lockdown period, they keep growing through both health and financial crises.
Meanwhile, gold prices and stock markets continue on a roller coaster. Real estate remains the slow and steady tortoise in the race to build wealth. Rental returns will be down in 2020 for many investors across the globe, although your property values will take hits only if you are forced to sell. If you don’t need the liquidity, hold on.
When the world reopens post-crisis, you will have a limited window to take advantage of the opportunities this crisis will have created. Take advantage of it, and you will be even better positioned for the next crisis.
Lief Simon is an international real estate investor and Co-Founder of Live and Invest Overseas. He is also Editor at Offshore Living Letter, a publication of Live and Invest Overseas. He has lived and worked in seven countries on five continents, managed businesses in 10 countries, and owned property in 21.