While the Philippines and every country across the globe have ground to a halt due to the ensuing coronavirus disease crisis, the world seems to be struggling to adapt to significant changes brought by the pandemic. Property investors are also weighing on its market implications.
This year’s pandemic is not the first crisis that the real estate industry had to face. In fact, the sector has become even more resilient through the decades, from the housing bubble to the Asian Financial Crisis. But the question still remains: amid coronavirus pandemic, is real estate a safe investment option? Here are the top 5 reasons why it is.
Long term Investment
In comparison to other forms of investment, real estate is secure and steady in the long-term. Stocks, for example, are much more affected by economic crises and are more unpredictable. In commercial real estate, the effect of COVID-19 won’t be experienced until later because of the market’s nature.
Real estate investment, unlike the stock market, does not heavily deviate daily. It is a steady investment that sustains you with income. Of course, the market may not be the same in every city, so opportunities to buy and sell can vary substantially across the country.
But real estate has more stability in the returns it generates on investments because it’s a never-ending demand from two parties – people and businesses.
Businesses will always require brick and mortar of some kind. People will still need a place to live in, so whether it’s residential or commercial property, your investment will continue to contribute to the overall commercial market.
The increase in the number of mid-income families who want the comfort and benefits of living in the city is one of the significant reasons that amplified the demand for condominium and apartment rentals in the last few years.
Investors took advantage of this growing trend and doubled down on the purchase of these residential units for the sole purpose of rental income (even through AirBnBs).
Another perk of investing in real estate is that they are a physical asset you can utilize. Even if the overall value deflates, you’ll still be left with a tangible asset. Real estate is simply a much safer option for those willing to invest.
You’ll also benefit from investing in real estate because of the increase in property value. Real estate is unlike other assets that depreciate quickly, such as cars. Over time, real estate prices increase in value, and although every region of the country is a little different, inflation alone pushes up the costs of most things over time; this includes real estate.
This is why, historically, real estate has shown to be an excellent source of profit.
However, many building owners have adjusted their operations and systems, especially during the first few months of the implementation of the Enhanced Community Quarantine. Because of this, many property investors think it may negatively affect the real estate sector’s marketing strategy. According to Dave Tan Gana Jr., Sales Director of top brokerage firm LYONS Realty Corp., the current situation is an opportunity for better marketing.
“The ECQ has brought about more strict protocols. This will ensure the safety of the unit owners and residents. Meaning, it actually adds more value to the property and moving forward, it’s going to be a standard in which investors will look into when investing in properties from hereon.”
Another advantage of investing in real estate is its diversification potential. Real estate has a low to negative correlation with other major asset classes- meaning the inclusion of real estate to a portfolio of different assets can decrease portfolio volatility and contribute a higher return per unit of risk.
Real estate properties are usually quoted on a regional basis, and the efficacy of individual assets is greatly affected by local supply and demand dynamics and regulations. Even within a country, returns are likely to differ across property types (office, retail, industrial, residential) and location. Therefore, adding a vast number of properties across several property types and locations to an equity and bonds portfolio can propose a double or triple diversification benefit.
There is a definite proof on private and unlisted real estate. However, numerous studies have mentioned that it is advantageous to add both private and listed real estate investments to a portfolio, as concluded in a 2015 review of academic studies since the early 1980s by Norway’s sovereign wealth fund.
Multiple Financing Options
Compared to other investment options, real estate provides multiple financing options, which will benefit those relatively new to the field.
A traditional mortgage crafted for investment properties may be the best option for new real estate investors. Investment property mortgages operate similarly as the first mortgage on your home. However, lending requirements may be more rigid and higher.
Veteran investors may opt for commercial, residential real estate loans. It may indicate “commercial” in its name, but it is not meant for commercial properties such as shopping centers and big stores. These are residential loans for investment experts, typically those with plenty of properties in their portfolio. Also, this type of loan is for landlords and people who frequently fix and flip houses.
Due to shorter terms and higher interest rates, many of these loans are considered “hard money” investments. Some lenders eschew this designation and call their offerings “mid-term loans.”
Competitive Risk-Adjusted Returns
Risk-adjusted return calculates how much risk is associated with the production of a particular return. Real estate investments are unpredictable than traditional investments (stocks and bonds). This means that they are not likely to change abruptly. Because the market remains stable, investors can use stable costs and smooth returns as leverage.
While the COVID-19 virus poses risks in cash flow, post-COVID19 emergency protocols, and contract clauses like rental abatement/discounts, the condominium owners ensured staggered payments and payment extensions.
Dave Tan Gana Jr. of LYONS Realty Corp. said that while the COVID19 pandemic has indeed temporarily affected the cash of the current investors, the real estate will surely recover fast; thus, cash flow for the investors will also improve.
“As for new property investors, the lighter payment schemes for the investments during this crisis will ease out the cash flow issue as it will just neutralize the possible effects.”
Are you interested in investing in real estate projects? Then consider inquiring about other possibilities with LYONS Realty Corp., a trusted brokerage firm in the Philippines dedicated to providing fresh perspective and ideas for a new approach in providing top-notch service to every real estate client. Contact us today and get your dream home in no time.