As the EU economy falls victim to the Coronavirus pandemic, most investors have diverged into two groups; those who want to save as much of their wealth as they can and those who wish to grow it. Cooler heads are quick to recognise that, with a crisis, opportunities arise.
The pandemic has severely impacted the EU’s economy, and experts see another recession looming. The European Commission’s Directorate-General for Economic and Financial Affairs (EFA), however, does not expect this recession to linger as long as that of 2008 or 2009, predicting an upturn in the Union’s economy as soon as in 2021, though recognising that the immediate economic effect of the pandemic will hurt.
The Coronavirus has brought many property deals to a halt, has made venture capitalists a bit less adventurous, and has – in some cases – stopped entire real estate markets in their tracks. With such economic calamity, opportunities begin to emerge for those astute enough to seize them. As less capital flows through markets and demand dwindles, prices inevitably drop, creating limited time windows for an opportunistic few to close the bargain of a lifetime.
“It’s always good to invest when there is not too much appetite in the market”, says Pamela Hoerr, Board Member of German Real Estate Giant Real IS AG. “We have been battling with too much capital in the market over recent years.”
The EFA forecasts a drop in EU GDP of -8.3% for 2020, as well as an inflation rate of 0.6%. A dip in GDP is commonly accompanied by lower prices and limited cash flow in property markets. Prolonged periods of negative cash flow forces corporations to slash prices to sustain operations, and that is precisely what is happening right now.
Perhaps the most interesting part of the EFA’s 2021 forecast has to do with its recovery projections; The EU’s GDP increases by 6.1% while inflation is set for a surge of 1.3%. These numbers indicate a V-shaped economic growth rate, the bottom of the “V” presenting the ideal investment opportunity. Investors able to accurately identify and time the bottom of the V make career-defining returns.
Some prominent real estate analysis companies have predicted a drop in property prices in the upcoming months. Residential properties across the European Union, says Liam Bailey, Global Head of Research at Knight Frank, are set to suffer a 5% fall, while the effects are more pronounced in the office and commercial segments, where declines could amount to 10% and 20%, respectively.
“There were positive signs in several markets globally that prime prices would rise throughout 2020 but, unsurprisingly, COVID-19 has put a halt to that” explains Bailey.
“Of the 20 cities Knight Frank has analysed, 16 of these will see prime price declines in 2020, with only a handful avoiding a fall into negative territory—either because of historic supply shortages or because transactions were able to continue during the lockdown and these measures are already being eased.”
Note that one of the 4 cities Knight Frank indicates will not see a decline in prime property prices was Lisbon-Portugal.
As real estate developers are scrambling to secure funds, prices are dropping, demand is decreasing, and competition for the best properties is suddenly significantly reduced, it increasingly looks as though the bottom of the V is near. For investors with cash on hand right now, this may be the chance they’ve been waiting for.
Many investors view properties in certain countries primarily as a route to immigration as Portugal, Greece, Malta, Spain, and Cyprus all offer real estate-based Golden Visas. Now, however, properties in these countries are becoming more than a means to an end; an investment opportunity in their own right with the added bonus of a residency.
While Cyprus, Malta and Spain have all seen a decline in property values, Portugal stands out as the exception to the rule so far; property prices across Portugal rose 12% on the year in March 2020, at the height of the outbreak.
Lisbon and Porto have been the most price-resilient cities in the Iberian country, and the available stock of prime property in the two principal cities is limited. Appreciation has persisted in both, owing – in large part – to the government’s excellent handling of the outbreak.
“In Lisbon, Portugal’s handling of the crisis, combined with strengthening demand and limited prime supply, will underpin price growth,” says Kate Everett-Allen, Head of International Residential Research at Knight Frank.
While other EU states offer real estate at discounts, Portugal offers a property market that has demonstrated robustness in the face of economic catastrophe and a secure asset class in times of uncertainty, which also provides residency in a straightforward way.
Warren Buffet is credited as saying that “it is only when the tide goes out that you see who has been swimming naked.” In the same vein, it is only when you have a global economic crisis that you see which real estate markets and property types do the best job of retaining their values. Portugal’s property market, it appears, was not caught off-guard by the ebbing tide.
As the pandemic highlights the importance of diversification, savvy investors are already planning ahead for the next global event. Gianluca Romano, Global Head of Indirect Capital Research at JLL, addressed the matter, pointing out that “the current crisis is refocusing decision-making on the sustainability of investment opportunities and on building more resilient portfolios to guard against future crises such as climate change.”
Another factor at play is the imminent matter of Brexit. The UK’s departure from the EU coincides with the forecast recovery of the EU’s GDP. 2021 could unlock latent demand for properties in EU countries with Golden visas as UK nationals look to secure residency within the European Union. The introduction of a new, sizeable market with exceptional purchasing power could see real estate prices in EU countries surge once more.
Why You Should Invest in EU Real Estate
For many people who choose Residency by Investment Programs through real estate, safety and stability are key driving factors behind their decision. Having the reassurance that, should they need to, they can relocate their family to another country quickly should geopolitical tensions either restrict travel or have an impact on their business ventures provides security for both themselves and future generations.
Savory & Partners offer global residency, citizenship and immigration investor programs to High-Net-Worth Investors and families from across the world. For more information, contact our team of expert consultants or please book a FREE consultation now.
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