PH Real Estate shows stability amidst Coronavirus
With the current events happening in light of the COVID-19 pandemic, investors are concerned as Metro Manila is on an indefinite community quarantine. Public and private sectors are expected to be in suspension, despite overseeing business continuity.
In the face of a global market crisis, working proactively to protect against COVID-19 is every industry’s top priority. Foreseeing the expected economic downfall in the first half of the year, using previous outbreaks as a guide to facing the COVID-19 crisis provides us with an anticipated strong rebound in the markets in the second half of 2020.
Public officials put health and safety as its top priority above the country’s economic performance. With the assumption that infections will be contained before the second half of the year, what does this suggest in the domestic real estate market?
We provide an analysis as to why real estate is still considered an excellent instrument regardless of the current set of circumstances.
1. Rental Income
The value of stocks is seen to be experiencing an ongoing decline, even more critical at a time of a recession. During these volatile times, dividend yields and capital gains are expected to produce inconsistent results, which makes market investors on the lookout more than ever.
Fortunately, real estate mitigates that risk factor as it ultimately translates to every person’s basic necessity. As involatile as it is with the equities market, rental income from acquired properties remains consistent regardless of the stock market performance. Statistically speaking, rental rates have not been heavily affected by market conditions as rent is a crucial part to everyday living.
This heavily focuses on central business districts such as BGC, Makati and Ortigas, where it is home to various commercial businesses. Despite the on-going lockdown issued by President Duterte as of 16 March 2020, people need a place to stay in especially at a crucial time like this.
However, that does not mean that rental income generated from real estate guarantees a recession-proof solution. In addition to the existing risk that comes along with every real estate investment, each Property Investor should pay extra attention to their tenant’s capacity to afford rent, and other causal factors among others. This mitigates the risks that may disrupt the flow of rental income. To an extent, there is still an overall gain in income from property rentals for the Property Investor, despite mitigated risks.
2. Mitigated Risks
During economic slowdowns and recessions, investment from real estate shows a better resilience in contrast to equity markets. This is due to its limitations to macroeconomic factors and global policy changes. Anything that is seen on the news and media heavily affects the outcome of trade and commerce, but that is not evident in the real estate market.
The real estate market is very much different from how the stock market operates, mainly because the latter has a wider variety of risk factors outside the control of the investor. Equity markets are much more sensitive to corporate governance, supply chain risks, and gross macroeconomic performance.
Now that President Duterte has implemented a travel ban in light of this unfortunate pandemic, fewer flights will result in lesser foreign tourist interests, which affect the overall supply chain of numerous industries.
A Property Investor that invests heavily in a more tangible asset such as real estate has no need to worry about these extraneous market fear. As long as the Property Investor’s tenant pays the rent on time and that both parties agree to a satisfactory rental rate, there is a much decreased risk in favor of the Property Investor.
3. Asset Management
Being able to liquidate assets quickly has a bit of a twofold component, at least in the equities market. One, there is a false sense of security to quickly sell off assets in favor of not losing any more stocks. Second, liquidating assets quickly is a practical decision out of fear of losing more.
With real estate, it takes more time to liquidate these assets, as it is considered a private investment. Real estate does not transact as frequently and as quickly as the equities market, and that is a good thing especially during a recession.
Property Investors partake in a meticulously step-by-step procedure that involves multiple parties such as brokers, lawyers and banks that further prolongs the sale and purchasing process of Property Investment. At a time like this COVID-19 pandemic, not liquidating an asset works best in favor of the Property Investor – it reacts slower to respond to valuation shifts unlike public investments as with the equities market.
Certainly, despite the slow-moving pace of transaction in the real estate market, leasing and rentals don’t fluctuate wildly on a day-to-day basis. Do note, however, if the current situation has an impending impact on macroeconomic performance, it might have an influence on property values as well. Nevertheless, it is still too early to measure any potential repercussions.
These are the primary reasons why real estate is one of the more reliable assets to invest in the long term, as it has the powerful ability to weather multiple economic crises.
Regardless of the current market conditions, we still advise to diversify the Property Investor’s investment portfolio, and that real estate alone should not be the only instrument to mitigate these risks.
In spite of market downfalls, real estate has always been the core centerpiece of most strategic investors. And because of that, real estate has always been highly regarded as a stable, long term investment instrument.