In recent years we have seen equities being significantly affected, while property remains a strong investment.
There is a misconception that there is a direct connection between stock market performance and real estate values. Traditionally property is far less volatile than the stock market and has a high tangible asset value. The strength of the real estate market is impacted by treasury bond prices, which are correlated to mortgage rates. When the stock market and other asset classes start to see a lot of volatility, investors will move their cash to bonds for stability and security.
Irrespective of the impact the virus has on society, people will still need accommodation. Both Property24 and Private Property agree that property will weather the COVID-19 storm. This offers a measure of security in terms of property investment holding ground in times of turmoil. More consumers will need (and want) to rent due to affordability and an uncertain future. Home ownership for young adults has also been declining. More millennials are entering the property market and research from Momentum Corporate shows that only 40% of millennials are interested in home ownership. They have been tagged as ‘Generation Rent’ .
South Africa has already seen a major rate cut creating the so-called buyer’s market, but there is no reason to shy away from property investment in the time of covid-19. Property remains a strong investment. The government will push interest rates even lower. Investment funds and other sources of money will become real estate projects. Banks in particular are now so heavily dependent on consumer loans that they have a large incentive to shift more money into real estate.
When evaluating the different value bands, the performance trend is similar to what was experienced in the last 2 years. The affordable market is expected to remain the fastest growing value band, which was more robust during the last 4 years, where the higher end market increasingly suffered at the hands of the low economic growth and policy uncertainty.
During this recession we won’t see the massive foreclosures and wholesale drop in home prices that happened in 2008. The effects this time will actually be good for real estate investors. During 3 of the last 5 recessions house prices actually went up and if the economic impact due to the coronavirus follows the same pattern set by past public health issues, we may be poised for a strong rebound once the virus is under control and normal activities have resumed. Lightstone also predicts that we will end the year off on a positive trajectory.
Residential real estate offers investors the calm they were looking for in the coronavirus storm.
Take advantage of this opportunity to invest in property