While the coronavirus has stopped much of the world from operating, the return to normalcy seems worryingly undefined. As we find ourselves in unchartered territory, the level of uncertainty in the economy skyrockets and the recovery trajectory is difficult to forecast. The feeling is very similar to the global recession in 2008, but in every crisis, there is opportunity.
It is important to remember that many investors significantly raised their capital during 2008, while others regretted inaction and missed chances. As uncertainty builds in the short term, investment activity, specifically in the real estate market, is expected to slow, because restrictions limit investors’ ability to perform due diligence and execute transactions. However, in the long term, investing during recession and epidemics has proven to have favourable outcomes when done strategically, as it is far less volatile than the stock market and the competition is at a minimum.
How real estate was affected by past pandemics and recessions
While the pattern is familiar to a standard recession, the current pandemic should be measured under other scenarios as studies show that historically, economic activity returns to normalcy very quickly once epidemics are over.
The closest parallel to the current situation is the 1918 influenza pandemic, popularly known as the Spanish flu which resulted in absolute market shutdown and immediate economic consequences such as labour shortages and loss of GDP. However, capital city housing prices did not fall at all. Instead they boomed in 1919 and then continued to rise by more than ten percent each year until 1921
In 2003, during the SARS outbreak, Hong Kong prices did not fall significantly, and once the epidemic had run its course, transactions snapped back almost immediately. Consumers practiced social distancing which led to a temporary fall in monthly real estate transactions (from 33% to 72% vs baseline), but only a very insignificant fall in home prices (1.9%) was reported, as a rapid economic recovery was rightly predicted.
In 2008, many investors lost their assets during the housing bubble burst. However, single-family rentals performed positively as a whole because people always need a place to live and work, which is why the smart, long term investor considers real estate to be a safe haven during times of uncertainty.
The 2005 emergence of avian flu and the 2009-10 H1N1 (swine flu) pandemic also generated short-term market volatility, that stabilized within 90 – 180 days on average.
The current situation in China is also indicative of the global real estate market, as home prices have not fallen, even when transactions almost ceased. If history has anything to teach us, it is that during periods like these that high net worth investments with long term horizons have a lot to gain when selecting strategies that have a great chance for long term appreciation.
“If the Covid-19 pandemic peaks in the first half of 2020, there will be a rapid recovery in sentiment in the second half of the year, offering investors the opportunity to buy assets now” – Covid-19: Impact on APAC Real Estate Capital Markets: Colliers International Report
Cyprus – A World Class Textbook Case of Pandemic Management:
While there is no global policy response to the economic implications of the outbreak, individual countries have taken important steps to cushion the blow for their own economies, industries and people, with the minimization of real estate investment risks being treated as a top priority.
Acknowledged for its quick recovery after the recent recession, its focus on creating solid investment opportunities that attract foreign interest and protective measures that secure its real estate market, Cyprus has once again been recognized and praised for its recovery strategy. Provisions have been made in order to avoid a market crash and an unsustainable drop in annualized GDP, while the country steadfastly prepared for a faster recovery than expected.
With very high testing rates, Cyprus, has one of the lowest fatality rates in Europe, which is a good proxy for judging the preparedness and capacity of a country’s healthcare and control systems, which in turn are a good proxy for the general performance level of its public systems.
Investors opinions on Cyprus Crisis Response
According to an online survey, taken during a digital session with major players in foreign investment projects across the island and the Minister of Finance, Mr. Constantinos Petrides:
- 92% of foreign investors are satisfied with measures taken by Cyprus to tackle the outbreak and manage the crisis it created
- 89.4% stated that they were very satisfied or satisfied with service providers response to ensure continuity
- 90.1% stated that they were satisfied or very satisfied with the provision of information and instructions during this period
Implications of COVID-19 on Cyprus Real Estate market
While the property market has taken a slight hit in Cyprus during the pandemic, the implications have been foreseeable, and the overall rebound forecast indicated as positive:
- During the three-month period (January – March 2020), real estate sales amounted to 1991, compared to 2366 last year, indicating a decrease of 16%
- Chinese activity has been almost absent since December 2019 due to severe restrictions for potential buyers to travel to the island or send funds to complete purchases
- Some developers are planning to change use from residential to office or hotel accommodation in the hope of a greater demand when the market starts to recover
- Construction was at a standstill from mid-March to May
- Rapid lift of measures due to successful crisis response, with construction and real estate as well as the public sector resuming operations in early May
- Marina, casinos and Larnaca port projects predicted to suffer in short-medium term only, but not in long term.
- Property market forecasted by Cyprus Valuers Board, to rebound in 2021
Additional and new emerging incentives for investors, during this period:
All factors indicate the strong potential for low-risk investment opportunities in Cyprus, especially during this period, with a quick recovery period which investors can intelligently use to their favour, as buyers will be open to offering discounts and agreeable payment terms, and the current decrease in competition means that interested parties will have the opportunity to purchase prime assets in prime locations at reasonable prices.
During this period, the government will also be looking to expedite approvals for citizenship through the Cyprus Investment Programme (CIP), in order to enhance the country’s income and boost the economy. This means that with the right support, foreign investors can strategically choose a high-value property on the island and submit their application for a Permanent Residency Permit as well as for Cypriot citizenship, which will be fast tracked and processed in only six months. Through the CIP, investors and their families can study, work and live in any country of the European Union as well as enjoy visa-free access to more than 170 countries.
Tips for investors interested in Real Estate during and after the outbreak:
- Act now so you can gain from increased negotiation opportunities for discounts while less investor traffic which will lead you to greater opportunities for investing in high-value assets at prime locations
- Look into long term investments that will generate ongoing passive income
- Invest in historically strong markets that have recovered quickly from previous economic crisis, such as Cyprus
- Invest in cities with a strong workforce, vibrant business environment and many job opportunities, such as Limassol
- Purchase projects with progressed construction or completed assets
- Prefer projects where you are the major investor and the completion of the project does not rely on other sales
- Look for Grade A multinational tenants for whom rental costs are a small proportion of total revenues so that they do not look at these assets as cost centres
- Use a local partner to help you identify asset pricing cycles through the entire process, as well as make sure you benefit from any national incentive scheme, such as the Cyprus Investment Program, has to offer.
Your Trusted Property Investment Partner in Cyprus
At a time where everyone seems wary of predicting the future, investors can pave their own way forward by taking action with confidence and looking ahead rather than looking for short-term prospects. When it comes to foreign property interest, using a local expert is the only dependable way to make sure you choose high-performing investments, especially during an economic reality with seemingly unsure footing.
If you are interested in finding out more about your real estate opportunities in Cyprus, specifically during and after the COVID-19 outbreak, Pandomus will be happy to share its extensive knowledge of the local market and guide you through a fruitful strategy that will maximize returns on a long-term basis.
Pandomus Group works as a Multifamily Real Estate Office that focuses on helping you identify the most suitable assets and drive you towards with low-risk investments with secure returns, while navigating you every step of the way through the CIP process, if you are interested in acquiring European citizenship benefits along with your investment.
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Christian Henrik Nesheim is the founder and editor of Investment Migration Insider, the #1 magazine – online or offline – for residency and citizenship by investment. He is an internationally recognized expert, speaker, documentary producer, and writer on the subject of investment migration, whose work is cited in the Economist, Bloomberg, Fortune, Forbes, Newsweek, and Business Insider. Norwegian by birth, Christian has spent the last 14 years in the United States, China, and Spain.