Could the pandemic actually be good for property? I’ve got a theory…
The Coronavirus could see residential property prices boom.
That’s probably going to sound like a pretty odd-ball prediction, but hear me out.
I think there’s a good chance we’ll see a ‘retreat to residential’.
I got this idea after talking to a mate of mine in the events industry. As you probably know, I’m a big buyer of event spaces. I run seminars and conferences all over the country. I’m a gold-class client.
Anyway, my mate reckons the whole industry is incredibly nervous. We haven’t seen mass cancellations, or enforced social-distancing measures here yet, but the events industry thinks it’s probably only a matter of time.
And they’re already seeing some high-profile cancellations. The tech giant Cisco was supposed to host 8,500 people last week at an events centre in Melbourne. It’s their flagship Asia-Pacific conference “Cisco Live”. But the whole show got canned because of “ongoing concerns” about the outbreak.
So it made me realise, wow, event and conference spaces are really going to struggle.
Now property is a broad church. We’re used to focusing on residential, but there’s a whole spectrum of income-producing real estate – from small-scale commercial to office spaces and co-working spaces, to hotels and resorts, to AirBnb rentals, to sporting venues and entertainment precincts and to, of course, events and conference spaces.
Now you look at that list, and pretty much all of them are going to struggle if the virus continues to escalate, and the government institutes social-distancing measures – cancelling football games etc. Sweden has banned all gatherings of more than a 1000 people.
So we know tourism related venues are already struggling. But tafes and universities? Hurting. Offices? Ouch. Even your humble café is going to struggle if people are bunkered down at home.
So there’s pain in the outlook for most the property spectrum.
But not residential.
If people are bunkered down at home – if they’re working from home – the residential sector might actually catch a lift. If you’re going to be working from home for the next 6 months – and if you think about it, once your workplace reorganises itself around remote working, it might just decide to stick with it – so it could easily be longer than six months – so if you’re going to be working from home, it may as well be a nice one. Maybe one that at least has an office.
That’s not going to move the dial much in and of itself, but my only point is that across the property spectrum, residential stands out as having the least to lose from a serious virus outbreak.
I mean sure, real estate agents will have to change the way they manage open homes, and you can probably say goodbye to auctions for a while, but other than that, the impact on the residential sector is probably going to be fairly muted.
That means, I think, that investors with money to invest in real estate – and some funds have mandated investment targets – they’re going to see residential as far and away the most attractive option.
Money will retreat to residential. Just as money stops flowing into other property classes, it will start flowing more strongly into residential.
And, if every thing lines up, residential property could boom (more).
Look, there’s a lot of uncertainty in this picture. If we get a full-blown credit crisis, all bets are off. Who knows what happens.
The only point I want to make is that in all this uncertainty and with everything that’s already going on, residential looks pretty good.
Maybe this is what ‘safe as houses’ means.