How crisis affects real estate and what investors can do

How crisis affects real estate and what investors can do

Real estate is designed to sustain human existence. It is also the asset class that allows you and I express our dreams, desires and aspirations. It is crucial to wealth creation.

It is envisaged that there will be lots of changes during and after the current crisis. These changes will affect how people define real estate space. Although there are also quiet speculations that the status quo would be maintained.

While we want to survive, we need vibrant economies to survive. Therefore, businesses and people have to adopt the rules of survival. It is then crucial that you think of who you will become after now.

The solid real estate is so crucial such that even in a capital and equity business, no matter how low the price of a unit of stock drops, whatever value is left of the unit of stock is a result of the real estate element in the business while the price fluctuation is often a function of human emotions and sentimental activities.

Real estate enthusiasts all over the world, on several platforms, have been asking a similar question lately and, it is, “How will real estate be affected by the current crisis?” Crisis, as we know, causes change. It sometimes forces change and adjustments. This crisis is not different. It will, no doubt, cause some changes.

Economic experts have advised individuals to keep and ensure they have access to liquidity during a crisis. Therefore, real estate should not be an asset class for consideration during a crisis or even immediately after. While it is okay to consider such advice, I would say that it should be subject to your peculiar needs, existing investment portfolio mix and how you define real estate with regards to your wealth creation goal.

It is easy to think that real estate is usually badly hit during a time of crisis. But, it depends on the aspect you have invested in and how you have invested. Real estate is an asset class that retains value for an investor. It gives some stability to your investment portfolio and is not subject to quick free fall as is common with other asset classes. However, it may take time to sell and convert to cash because it can also be an emotionally charged asset class, and hence, underperforming. 

The tangibility and use of solid real estate become more evident during a crisis. It becomes clear how much space needs to be shrunk and how much space needs to be expanded. Other aspects of real estate also begin to get some consideration.  New definitions may even emerge, especially as real estate is broadly defined to include all that nature provides.

Sales volume of certain types of real estate may decrease during the crisis. For instance, the number of people looking to sell a home in some locations may reduce or increase. The same goes for buying a home. Again, this depends on the dynamics of a crisis.

A crisis, such as our world is facing now, will cause certain demography to realize the importance of having their own space either through rent or ownership such that by the time the economy revives and stabilizes, there will be an increased demand for residential real estate as people would require bigger or smaller spaces to adjust to current realities.

The changes that accompany a crisis can also drastically reduce the patronage for some other aspects of real estate business for a while. Spaces are likely going to be used more for storage and logistics than for hospitality and other businesses. Real estate businesses that cater to the latter category should get creative and plan some conversions to mitigate the effect of the downtime.

While the disposable income of people is expected to shrink towards the use of some kinds of space, there are aspects of real estate that stay relevant and attract more spending in and out of a crisis. They are those that meet survival or basic human needs. Food is essential to survival and so is shelter and general wellbeing. An investor should consider adding basic essential real estate to their portfolio mix now but in an organized and carefully planned manner. Now, more than ever, your investment portfolio must have the right mix of real estate asset.

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