Coronavirus Impact on Real estate Investments Pakistan
The coronavirus pandemic is far from over, so knowing how to deal with your investments is paramount and also true for real estate investments. Commercial real estate sector is not the stock market. It’s slower moving and the leasing fundamentals don’t swing wildly from day to day. If the virus has a sustained and material impact on the broader economy, it will have feed through impacts on property as well.
Whilst it is true that warmer regions such as Pakistan are not as hard hit as colder regions in the world, still uncertainty looms. The backbone of Pakistan real estate are the expats who will take a substantial hit during this crisis.
Therefore, it is time to face the reality of some sort of global recession and it is time to implement the lessons we learned in 2008 and 2009.
Lessons from 2008 & 2009
Pakistan’s real estate market was already in recession when the last global recession hit, and although we saw a reduction in transactions, we did not see a huge downturn in prices as the market had already hit bottom before 2008. Thus, I believe we may not see any huge downturn except in certain underdeveloped areas.
In all of our posts since 2016 we have been advising everyone to stay clear of underdeveloped areas because:
“Anytime there’s uncertainty in the market, if something is not a must sell or a must buy, people are going to take their time and take a step back,”
Who wins and who loses?
There are going to be winners and there will be losers in the present scenario.
If you are going to go for panic selling or if you suffer liquidity problems and you need to cash in on your investments then this is the worst time to sell anything in real estate.
On the other hand if you have diversified your investments and have sufficient cash flows and liquidity, you win.
This is not forecast to be a long recession as the world is expected to get into the recovery and rebound stage in a year or two. We will witness some great opportunities to invest in coming days and anyone who has the liquidity or extra cash is going to reap the fruits in the near future.
Do and do nots of investment
Anything which is going to offer an immediate value of investment is worth looking at, but foremost are the rental generating properties.
Whilst we will see a general reduction in rentals overall (especially for the commercial rentals as small retailers and shopkeepers struggle), we always need a place to live. It is therefore wiser to invest in residential properties.
This will be spearheaded by luxury apartments which offer a much better rental return and even if the rentals are cut down by 1 to 2 percent a year, it won’t be a significant loss in cash flows.
It is wiser to invest in areas which offer instalments, depending on your requirement. It could be plots, houses or apartments. Investing in instalments, will give you the leverage of not investing all your money up front, even if you have it. In addition, your completion of instalments may well coincide with the rebounding market and give you huge capital gains with substantial ROI.
Do not invest all your money; you must keep a healthy cash flow. Ensure that your needs are being met through hard cash, salary, earnings or rental income for at least 2 years.
As of now, it is best to go for residential properties, for rental incomes. However, if you get a good bargain in commercial properties with solid rental generating prospects, take it.
Do not invest in areas which are not developed or being populated as of now, unless you can get your hands on an opportunity buy.
Remember liquidity is going to be scarce, so do not buy anything you want to sell out in 6 months, the minimum period you should plan to hold is 2 years.
Advice for young investors
If you are young with a long-term time horizon and you are able to sustain yourself and your family during this period, you just grin and bear it.
You must have an emergency fund already in place or a secure job and should be able to easily pay your bills. If you fall in this category, the downturn could be considered a ‘once in a decade’ buying opportunity for all young investors.
Advise for nearing retirement
If you are nearing retirement, start building your cash reserve. That means if you have to sell some assets, do so and the bigggest share of yoru real estate portfolio should go towards rental generating properties.
However, if you are going to spend the money in six months or two years, it shouldn’t be invested and should be kept as hard cash. You may also want to consider delaying your retirement. Instead, keep working for another year or two.
Advice for the retired
If you are retired and have substantial cash reserves, plenty of rental income at hand, then there is nothing to worry.
However, if you lack liquidity and solely depend on rental income, or investments that just meet your expenses, it may be a good idea to sell out some of your portfolio and keep a handy cash reserve.
Captain (Retd) Shahnawaz Yaqub Bhatti
Investment Consultant and CEO at Imlaak
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