Earlier this year, Covid-19 broke out and shook the world. The pandemic did not only cause havoc among the health care system, but it also gave a huge blow on business investments. Mortgage payments and other payables were placed on hold as countries paused to comply with flattening the curve. By doing so, lockdowns and minimal mobility amongst countries took place. While some are fortunate enough to work from home, some lost their jobs and are faced with unemployment until further notice.
The stock market took a huge plunge, especially in the oil industry, and retail as well. Aside from both that were mentioned, real estate felt the impact too. Who would want to invest in a housing loan in times of crisis? With the latter being said, the industry will face different challenges.
Prices will Significantly Go Down
With the market significantly going down, commercial real estate prices are expected to take a dip as well. With foreign investors taking into considerations buying real estate in the United States, things are a bit different now. Some are struggling to gain access on the US markets. The coronavirus outbreak will not only affect the country but as well as overseas.
Aside from buying properties, flying into different countries will reach a whole new level of challenge as well. Domestic and international flights are currently on hold, as the widespread of the pandemic is not yet contained. With that being said, checking the site and buying properties can be a bit challenging. The situation holds a huge effect on investors from overseas as they find it difficult to launch a new business, with a lot of limitations. Considering the risks, the return of investments is not yet certain.
Debt Rates, Vacancy, and Bankruptcy
With a decrease in demand, several impacts surface that can leave to a huge loss in business. The increase in multifamily properties with employments that are widely dependent on entertainment might feel the blow. With the disruption of the global supply chain, a recession is predicted or expected to happen. Although there’s a slim chance that this can be avoided. One of the industries that is highly impacted is the entertainment industry, which plays a massive role in real estate. With employees from the market losing their jobs, non-payment and evacuation can potentially happen.
With payment delays, higher vacancy, and piling debt rates, bankruptcy is bound to happen in the near future. There are tenants that may be forced to share a loft, or even move out into cheaper accommodations. These problems and vacancies can have a significant impact on the net operating income of the property. It causes a domino effect that can lead to bigger problems, including foreclosure if fees aren’t paid.
Higher Demand from Local Equity
The first two impacts may be negative, but the third one sheds light into the tunnel—the third impact. With the lack of foreign investors and because some pulled their investments off the market, there’s a huge possibility for locals to venture into real estate. The reason being is that real estate is a more stable option compared to the stock market.
As a buyer, when you’re looking for potential deals, carefully consider the pros and cons. Consider your investment money and think of ways on how it can become a gain instead of a loss.
Based on Materials from Forbes