Coronavirus and short-term opportunities in real estate
The coronavirus event is having a very negative impact on all economic activities and the impact is expected to be also very negative on a social level. The level of destruction in companies will be all the greater the more time we spend in forced confinement, after this, we will still have to deal with the consequences of continued social detachment and changes in social habits.
In this text I do not intend to adopt either a very pessimistic view or even a very optimistic view of the moment, since in the real estate sector this would be completely harmless and it is only our activity that I intend to focus attention on. As a consultant talked to me on the phone about real estate consultants and that despite all the human drama, we (real estate consultants) were just like the gravediggers, who were especially dearest in bad times, because help is needed to carry the cross and it is especially in these moments that whoever carries it stretches out his arms to someone who once turned prosperity.
Not everything is bad, not everything is good
A certain sage reduced all wisdom to the middle path. If we take right too far, it becomes wrong. The orange squeezed to the maximum gives only bitterness. Even in pleasure we must not go to extremes. Intelligence itself runs out if demanded too much, and if we milk an excess cow, we will have blood for milk.
On crisis opportunities and on this crisis
Money is like energy, it doesn't disappear, it transfers. What do I mean by that?
The opportunity in a crisis or outside it is precisely to take the added value that the other created. In other words, for the “lost wealth” on the one hand there will be someone on the opposite side to stay with it.
The real estate consultant is a neutral agent and in an environment like the one we currently live in, his role is not very different from the role he had before. What changes is the perception of “wealth transfers” and the focus on the agent or the way that it will allow “wealth transfers”. Before this crisis, the real estate consultants had the problem of the scarcity of the real estate offer in hand and at that time the agents that allowed the “transfers of wealth” were essentially private sales customers motivated by the appreciation of the sale of their property and construction / remodeling companies. properties driven by profit margins on sales transactions. In the current context and from now on, we can only talk about actual changes that have already occurred and the probabilities of future events. As this crisis unfolds, there will be economic, social and political consequences that will dictate the greater or lesser probability of certain events in the real estate sector.
Short-term opportunities in real estate mediation
Some short-term opportunities are already beginning to be seen, dictated mainly by the economic changes that the event has accelerated. The most obvious to me at the moment are the biggest offer and demand in the rental market, the avalanche of stressed owners / investors who will want to sell their property as soon as possible and the opportunity to convert local accommodation to conventional rental or even the sale of these local accommodation units.
- Rental market
The rental market has been characterized in recent years by the lack of supply and high prices. The event is causing four things: more offer of rental properties, lower prices, increase in requests for lower rents and the phenomenon of tenants in the impossibility of lower rents moving to smaller and cheaper types.
For the owners, the phenomenon will affect them mainly by the low rent prices at least at this early stage of the event.
The odds are in favor of accelerating the dynamism of the rental market. Let's see. Lower incomes for those who remain employed, generalized increase in unemployment, investors / remodeling without being able to make sales transactions for inflated products, collapse of local accommodation due to the freezing of international tourism, among others…
All of this plays in favor of the existence of more offers in the rental market and consequent lower prices precisely due to the increase in the offer of properties.
It is also expected that properties with a higher yield are precisely the smaller types, T0, T1 and T2 due to a greater demand for these.
For larger typologies, it may be interesting to propose to renters a room as a way to increase yields.
In local accommodation, the possibility of proposing conversion to conventional leasing is clear to the owners. There is too much supply for the demand ahead.
With all this, many tenants who have rented at high prices in the past will renegotiate rents or simply move to cheaper properties.
Therefore, there is a high probability that the event will give dynamism to the conventional rental market. The only danger I see is the socio-political risk that will lead some very specific types of landowners to refuse to place properties on the market.
- Stressed Owners / Investors
Stressed homeowners and / or investors often start the process of lowering prices in the real estate market. Falling sales prices in the housing market are usually slow and the decline is expected to occur slowly. With this in mind, owners / investors will want to sell their product quickly to make the most of the prices previously charged but fully aware that prices will now have to be lower in order for the transaction to take place. The discussion of price adjustment is something that has to be done in a much more recurrent way with them in order to achieve the transaction.
- Local accommodation
This is an obvious opportunity. Many investments made in this area are not giving any kind of return at this time and whoever made investments using credit will have to adjust to the new reality very quickly. There are two options for local accommodation: conversion to conventional lease or sale of the property. Regarding the conventional rental market, it has already been mentioned above. With regard to the sale of these properties taking into account the new reality of distance work, it is also something interesting to explore, since certain professionals given the new reality of distance work will be able to reside in places previously exploited to the extreme by local accommodation. The clearest example I can give is, for example, a computer professional who is expected to not lose any income from the event and who lived in a rented house in a suburb of a city near Lisbon just because he had to hold meetings in person at the company office once a week. With the change of paradigm, this professional will start to do all his work at a distance, including the meetings that had to be in person, all will be done at a distance using video. This professional can easily move to live in an old local accommodation unit in the Algarve or in the interior of the country.
Although the time is bad in general there are many opportunities to be explored by professionals in the field of real estate mediation. The biggest adjustment we are all going to have to make is in the part of the communication that will largely be made using digital media such as social networks and search engines. We are currently preparing for these changes with the development of new IT tools. These will be communicated and announced very soon.