What effect has covid-19 had on the real estate outlook for 2020 globally? Covid19 has claimed far too many lives and impacted billions more. How will it impact those seeking brick-and-mortar investments or residency solutions in Portugal and Spain?
The real estate investment window of opportunity
As we start to see lockdowns easing, we begin to contemplate our exit plans from this pandemic. Anxious to regain our liberties we look ahead to what the future may bring. Yet, many would argue that the prospect of looking to the future is even more daunting than looking back on the upheavals we’ve already endured.
A brief trip down memory lane takes us back to 2008 when the previous economic crisis that spiralled out of control after the Lehman Brother’s demise affected not only Americans, but citizens the world over. Since then, global real estate markets had slowly but surely made a steady ascent and recovered. Now, as we look forward many questions arise?
Which markets are best armed to rebuild and grow? Where should I invest next?
Whilst no one knows for sure what the future holds or how long we will be in this period of turmoil, one thing that is certain is that fear and uncertainty will have the most significant effect on real estate prices in the near future.
As with most crises though, major real estate hubs like London and New York will feel some impact but in the long-term they will quite likely regain any lost appreciation.
For investors that have both the liquidity available and a long-term vision, this present moment could offer a slim opportunity to invest in renown real estate hubs at slightly more favorable prices.
Although there may be some opportunities to ‘bag’ a prime real estate deal at lower prices in the short-term, it is unlikely that rental income will be favorable in any market for the next year at the least. Reduced employment opportunities and limited liquidity will impact even the most robust of economies.
Another consideration when investing in real estate during these critical times is the ease of closing on properties now. At the best of times, completing on a real estate investment is rarely ‘swift’. Hence real estate investors will need to arm themselves with more patience as they battle the more cumbersome process of signing, notarizing, registering deeds and documents at a time when our most basic freedoms of movement have been curtailed.
Read more: Which HNWI markets will survive post-Covid19?
Iberian Peninsula real estate
What about more vulnerable real estate hubs that aren’t as robust as New York, Berlin or London?
We explore two neighbouring markets in the Iberian Peninsula. Spain and Portugal, who both had quite distinct experiences during the pandemic.
Spain declared approximately 5,620 coronavirus cases per 1 Million inhabitants and lost over 25,000 lives. Next door, Portugal declared approximately 2,688 cases per 1 Million inhabitants and lost just over 1,000 lives during the peak of the crisis.
For a myriad of reasons such as the implementation of stringent government policies to demographic distributions, Portugal has had a comparatively smoother experience than its Iberian neighbour.
Spain’s real estate and golden visa
The Spanish real estate market suffered colossal losses in 2008. Spain was plagued with a high unemployment rate, financial instability and a slow recovery. We can see below a visual representation of just how sharply house prices fell and then grew over a 15 year period.
Over the past decade the real estate market has gradually recovered and Spaniards have been purchasing evermore properties. In 2016, almost half a million real estate transactions were registered and a large proportion of these were by local investors.
What proportion of real estate investors are foreign?
Foreign investors, from the UK, Germany and Nordic countries too have been drawn in to the Spanish real estate market due to its great value for money and enviable quality of life. Hence they still make up between 10 to 20% of total real estate investors.
What about non-EU real estate investors that are seeking golden visas?
As airports remain closed, flights scarce and quarantine periods the norm in many countries it will become ever more difficult for foreigners to travel, view and invest in real estate abroad. Spain has been seamlessly drawing in investors from China, Latin America and beyond who sought a Spanish Golden Visa by investing EUR 500,000 in real estate.
The pandemic will certainly cause a pause in foreign real estate investment in Spain and likely a slump in the values of properties in the foreseeable future.
But Spain is in a unique position. Unlike Cyprus for example, whose real estate market has greatly relied on the influx of citizenship investment applicants, Spain’s real estate market is not ‘dependent’ on its investment migration policies. Therefore, though other economic factors will, we do not anticipate that a fall in Golden Visa applicants due to the pandemic and travel restrictions will expose the Spanish real estate market notably.
Portugal’s real estate and golden visa
The Portuguese real estate market on the other hand had been booming. In late 2019 property prices in the Lisbon Metropolitan Centre were up by almost 10% from the year prior. Flats saw a greater appreciation than villas nationally and rental yields in Lisbon were at a healthy rate of between 4.5 to 7%.
The Portugal golden visa
The Portugal Golden visa has been incredibly successful in attracting foreign investment. Though there are various routes to obtain a Portuguese Golden Visa the most popular is investing either ~EUR 350,000 in a refurbishment (30+ yr) real estate project or ~EUR 500,000 in newer prime real estate. As of 2018, another option was opened up and now Golden visa applicants can invest EUR 350,000 in regulated Investment Funds.
Whatever route investors choose, if the pandemic has put into practice one lesson it is that having a viable Plan B, such as a Portuguese Golden Visa, is quintessential.
The Portuguese real estate market
What are the main areas to monitor when looking towards the Portuguese real estate market’s developments in 2020-21?
COVID19
Portugal has been managing the situation effectively and their commendable efforts will surely bear fruit in their recovery. The construction industry will be able to resume efforts swiftly and projects will be able to continue being developed sooner than in neighbouring countries.
TOURISM
Many foreign investors, especially those applying under the Portugal Golden Visa have invested in Portuguese short-term rentals and hotel refurbishments. The anticipated rental returns on these projects will likely suffer in summer 2020 as tourists will be trickling into Portugal. In the long-term though these tourism-targeted properties will still be wise choices, as the demand for short term and tourist accommodation in Portugal by far outweighs the supply.
GOLDEN VISA CHANGES
2021 will bring with it restrictions on where Chinese, Russian, Brazilian and other non-EU investors can acquire property under the Golden Visa regime. Hence we may see a surge in real estate investment in the next half of 2020 as foreign investors hurry to secure lucrative Lisbon, Porto and other areas that will no longer be eligible under the Portuguese Golden Visa after the new year.
INVESTMENT FUNDS
As travel restrictions limit investors’ ability to undertake a real estate site visit regulated investment funds will continue to generate interest by Golden Visa applicants. The approved option of investing in these regulated funds is less bureaucratic and offers a seamless, more cost and tax-efficient alternative to investing EUR 500,000 in Portuguese real estate. It is expected that these investment funds will continue to pool more foreign investors funds and invest these into lucrative real estate projects, amongst other asset classes. A likely welcome funds flow into the Portuguese real estate market in 2020.
If it’s any indication of what lies ahead, in the brunt of the pandemic, whilst Europe locked down its borders in March Imovirtual published that property prices in Portugal had risen 12 % in March 2020 vs March 2019.
We anticipate that Portugal will be able to weather this storm, enjoy a swifter journey to recovery and continue to position itself as one of the most stable real estate markets to invest in in Europe.
