How the global market will be impacted by Coronavirus

Following last week’s post on the UK market, I wanted to expand my thoughts to look at how the global market will be impacted by COVID-19. I’ve been doing my own research; keeping up with the latest news and speaking to some of our existing customers to gauge sentiment (and keep my social sanity)! 

With the world turned on its head, do we dare look to other markets? Will some feel the effects more than others? Given the unpredictable nature of the pandemic, it is impossible to know when the crisis will pass, or how much economic devastation it will leave in its wake. But, as I mentioned in my post last weekend on the UK market, fundamentally property is still generally our most significant asset – it is fixed, grounded and not going anywhere. 

One unexpected gift in this situation is some time to reset, rethink and re-prioritise. I’ve spoken to many people taking steps to get their life admin in order and consider ‘what next’ after lockdown. I think now, more than ever, people will give careful consideration to where they spend their time and money. Many have expressed a desire to diversify so that they're not tied to any single economy, government or indeed currency.

Interestingly, we’ve even had quite a few first-time investors asking if overseas markets [vs the UK] are the best bet right now. We are still seeing adventurous investors active in the market; one particular client based in Singapore who has been looking at UK opportunities due to the weak GBP quoted Warren Buffet:

‘be fearful when others are greedy, and greedy when others are fearful’

As the East begins to recover, we are seeing the first signs of restrictions lifting in the likes of China, and the impact this is having, and what that might mean for other markets. In Shanghai, the property market opened back up on 10 February but social distancing rules and public fear meant that people were reluctant/nervous to travel and business didn’t really start to resume until the end of February.

‘Today, by some measures — such as transport use — Shanghai’s economy has recovered to “80 or 90 per cent” of pre-crisis levels, says Dr Xin Sun, lecturer in Chinese and east Asian business at King’s College London. But “many affluent buyers will need to wait for the global economy to recover before they are confident enough to make new home purchases” Financial Times

For those speculating on a price drop in the UK, there is also evidence in Hong Kong that sellers are unwilling to drop prices. Instead they are holding on to see what happens and as a consequence prices remain relatively stable. As I mentioned last week, I think we are going to see a buyers’ market with eagle-eyed investors seeking discounted deals and cash investors snapping up discounts of 10%+ to reflect perceived additional risk. 

Off-plan and technology

Clearly, sales are dramatically down as most investors are holding fire for now, but we are still seeing a handful of investors buying ‘online’ (or via Zoom more accurately) in recent weeks to try and get their money working on some level with interest rates so low. I guess the extension of life online has extended to international property purchases! My mother-in-law has finally discovered the world of online grocery shopping so anything seems possible…

This seems to me where off-plan developments are going to work well (as long as there is security built in and buyers pay in phases relating to stage of build) with no requirement to visit and many buying based on CGIs and artist impression. As you are typically buying at a discount, potential short term volatility and/or market movements should already be factored in. Could we even see people requesting drone viewings in weeks/months to come?

So where?

Once we start to see some sense of normality returning, economically stable and previously popular destinations such as Portugal and Spain will remain so – but uptake will depend on when visitor numbers begin to return to their previous levels and airlines start flying again. The type of initiative outlined in this interesting article on CNN with passengers undergoing COVID-19 tests before boarding Emirates flights (though more details are to be confirmed) could certainly help catalyse numbers by allowing governments to ease travel restrictions as we start to get on top of the pandemic.

I also think places with good fundamentals – shortage of supply, safety/low crime, good healthcare, weather, affordable cost of living, and a secure political structure - will be top factors on buyers’ checklists in coming months.

Here are some countries I think will be ones to watch over the coming months:

• Portugal – always one of the most popular destinations for people diversifying due to its year-round sunshine, security (good safety and infrastructure), health care and incentives for retirees. Earlier this week the government revoked proposed changes to its golden visa scheme for the Lisbon and Porto areas, and I can see more capital flowing there from Asia and the US in particular (in addition to €700m+ for the government as a result).
• Last week Spain announced lockdown measures would ease with construction and manufacturing restarting. Despite speculation about a deep recession, there are a few people, including Kate Everett-Allen, Head of International Residential Research at Knight Frank predicting a v-shaped recovery – a sudden fall followed by a sharp rebound. Those touted to recover first are domestically-driven markets such as Madrid and Barcelona, with tourist/international areas like Marbella and Ibiza, which have a large international drive, more uncertain and dependent on flights restarting.
• South Africa offers high returns with yields of over 9% yields achievable. Foreigners can own, but political stability and uncertainty about the currency may put many off.
• Indonesia –historically hard for foreigners to buy properties, but leasehold agreements are getting better with new legislation coming soon which could open up the market when travel is re-established.
• In Morocco, the standard of living is relatively high, while the cost of properties is relatively low for buyers, and renters can enjoy yields of more than 6%.
• Belize and Mexico should boom – especially with people craving the Caribbean sun and lifestyle after having been confined for so long. In fact, one of our existing investors who owns an island there speculated that people might be keen to self-isolate on a private island development if something similar were to happen again.

The ones to be careful of..

• Economies that rely heavily on connections with Asia, and China in particular, are likely to suffer. Brazil, with China as its major trading partner, has seen a 10% decline in its currency since the COVID-19 outbreak began.
• The first European country to impose a nationwide lockdown, Italy has been one of the hardest hit. The market didn’t start to recover from the 2008 financial crisis until 2015 and sales were already slow so I can’t see it picking up any time soon. I expect more clarity in coming weeks dependent on what economic stimuli are introduced.

What next?

I’ll certainly be keeping a beady eye on what happens in Italy and Spain - our European counterparts who are a few weeks ahead of the UK and could determine our trajectory. My guess is that it will be mid-May at the earliest before any form of phased ‘unlocking’ starts to happen, and any sense of normality returns here in the UK.

In the meantime, we all have a moment to collectively pause, thank the brave people supporting us, re-evaluate our priorities and make hopeful, tentative plans for the future. Time has been the inhibitor for many of us in pursuing the lifestyle and goals we aspire to. Maybe the next few weeks (for those not out on the frontlines or home-schooling children) is a good time to plan to make the most of the current situation. 

Supporting the people supporting us

At this time, there seems no bigger or tangible impact than to support those on the frontline of this global crisis and with that we have decided to donate the Foundation's efforts towards two charities - to support our #nhsheroes and #healthcareheroes global efforts towards protecting those on the frontline.

If you would like to support either of these efforts, I've included links below to their fundraising pages:

Duty to Care - Providing support via online consultation to improve and sustain the mental health and wellbeing of healthcare professionals.

Global Empowerment Mission - Working directly with manufacturers to ensure the necessary items are sent to people and hospitals across the United States.