Updated: May 19, 2020
The global shutdown in response to the coronavirus pandemic is going to have big effects on real estate markets worldwide. However, the situation we’re about to see play out will not be the same as what we witnessed in the wake of the 2008/2009 global real estate crash when some countries—Spain, Ireland, and Costa Rica, for example—saw property prices fall by as much as 70% and more. Those bona-fide collapses were thanks to bubble pricing and over-lending. Markets with less leverage at work—Panama was the best example—saw far lesser drops in values and quicker recoveries.
Every property market worldwide will be affected by the pandemic crisis but not all negatively. The “survivalist” market—for properties in places where you could live comfortably off grid and self-sufficiently—will become more sought-after than ever and therefore more valuable. Land in Cayo, Belize, is at the top of this list.
Brand-name Markets Will Recover Quickest
Thinking long term, the world’s brand-name markets will be least impacted. Long term, a Paris rental property will always find a renter, though even this top-tier rental market will take a short-term hit.
Before the quarantine, prices in Paris were soaring, thanks largely to Brexit pushing big numbers of financial industry workers from the City of London to the City of Light. Few listings have been withdrawn during the extended lockdown of everything in this city including its real estate industry, but very few new properties have come onto the market. When Paris reopens, however, there will be a surge of new listings, creating a short-term softening and a buyer's market window.
Another European market that had been booming pre-pandemic is Lisbon. Here the demand was driven by Chinese buying property to qualify for Portugal’s Golden Visa program. Values surpassed pre-2008 levels, and investors were finding Lisbon expensive. As in Paris, the COVID-19 Effect should give you an opportunity to buy at a better price once things start moving again. However, as in Paris, the window for deals may not be long for better properties.
The best example of a city with brand-name resiliency in the Americas is Panama City. It’s the regional headquarters to hundreds of multinationals and a genuine business and financial hub with deep and diversified pools of both buyers and renters from around the world. In addition, Panama’s economy is backstopped by the Panama Canal, which accounts for about 40% of Panama’s GDP. If you’re in the market for an investment with a short-term horizon, start here.
A Supercharged U.S. Dollar Will Create Specific Bargains
One of the biggest opportunities created by the current crisis will result from supercharged U.S. dollar buying power. Brazil, Colombia, and Mexico (in the case of Mexican peso-priced properties; in some localized markets in this country, real estate trades in U.S. dollars) are all as much as 30% cheaper right now in U.S. dollar terms than they were two months ago, before accounting for any local price reductions.
Vacation Rental Markets Will Collapse
Hardest hit will be second-home and vacation-home markets. These will collapse in the immediate term. At the top of this list are markets like Cancún and Playa del Carmen, Mexico, where zero tourist traffic will kill rental returns and lead to depreciating values of up to 50%. However, these well-established and relatively accessible markets will come back before farther-flung, less developed locations like Akumal and Tulum.
High-density cities, likewise, will see collapses in their rental markets, as well, as demand across the board—residential, tourist, and commercial—will diminish. Think Rio de Janeiro.
Vacation and second-home markets in general will rebound slowly. Interest will pick up as air travel returns, but it will take 5 to 10 years for meaningful recoveries in some cases. On the other hand, as these markets will be hardest hit, they’re the places to shop for crisis-level bargains. Just be prepared to invest for the long term, and, very important, buy in a place where you’d enjoy owning and want to spend time. Don’t buy for cash flow or appreciation alone (or maybe at all).
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