How economic crisis can impact real estate investing
While the concern about the coronavirus is deepening, it is impacting the economy in many different ways.The international concerns regarding the pandemic would negatively impact the stock market.
The market has since seen its worst drop in value since the Great Recession of 2008, Forbes reported on Monday.
How the crisis might affect real estate investing as well, and feel that it will impact real estate in several ways.
Possible Impact No. 1: Real Estate Prices Will Go Down
commercial real estate prices will be seen dropping as foreign equity, which is constantly looking to buy real estate in the U.S., will have issues with accessing U.S. markets.
The outbreak will affect their ability to invest overseas. Flying to the U.S. to and from Asia and Europe is becoming more and more problematic, which hurts foreign investors’ ability to do business here in the near future. Since many foreign investors look for much lower returns than local investors, they are able to offer higher prices for multifamily properties.
With a decline in foreign investments in the U.S. market, the demand to purchase multifamily properties will experience a decline, resulting in lower prices.
Possible Impact No. 2: Vacancy and Bad Debt Rates Might Increase
Vacancies in multifamily properties might increase, particularly in submarkets where employment is dependent on entertainment. I say this cautiously, but I believe that there is a good chance that these events will trigger a recession due to the massive disruption in the global supply chain.
Since entertainment is considered a luxury, most people tend to cut entertainment expenditures when there’s a recession. Unfortunately, if that happens, many employees who work in the entertainment field will lose their jobs.
When people lose their jobs, they aren’t able to pay their rent, which leads to higher vacancy rates, as some tenants will be forced to move out to a cheaper apartment.
It also leads to higher bad debt, as non-payment of rent is considered a bad debt, and many property management companies work with collection agencies to collect those debts. Also, with layoffs and unemployment, there wouldn’t necessarily be qualified new tenants available to replace those who are evicted for bad debt.