Real estate investments in the time of the Coronavirus: a solid refuge

The Coronavirus emergency has created problems not only in the health and daily life of people, but also at high financial levels, such as on the Milan Stock Exchange and on Wall Street, making the stock market lose more than 20% compared to the highs reached recently. A bad blow for the financial markets.

The bond sector itself, although it may offer shelter to capital in search of fixed income, is now saturated. Yields turned negative along the curves through to medium to long maturities, with states like Germany, Switzerland and Denmark finding themselves no longer offering even a cent of yield on any of their bonds issued. In practice, government and corporate debt have become too expensive, as well as being expensive just to hold them in the portfolio.

At this point, just when the common thought was the inability to offer us value, instead the real estate market returns to be attractive. In ordinary stages, it is common to invest in financial instruments, for a liquidity reason. Selling or buying a property is, on average, a process with a more extended timeframe. Therefore, assuming that the property is a less liquid asset than one of a financial nature, what has been happening in recent weeks is changing the propensity of investors.

The liquidity of the financial markets, discounted under normal conditions, tends to dry up in complex phases such as these. Due to the torrential sales of shares and the incessant purchases of bonds, in many cases we have come to not find demand for the former and supply for the latter. Volatility has become a very high risk factor for anyone wishing to enter the stock or bond market now.

The real estate market is marked by greater stability. It is difficult, indeed impossible, to imagine that the sale price of a property will drop by 20-30% over the course of a few days or even months, while it is a predictable reality for financial instruments.

In addition, the property tends to guarantee an almost stable income. Taking the American market as a reference, where in the last decade the rent has grown by 3% per year, more than inflation itself, real estate investment has shown itself capable of protecting the purchasing power of capital.

Another interesting element is that as Wall Street plunged into the financial crisis between 2008 and 2009, the average rent continued to rise, albeit slowing down. Rent tends to rise more slowly when the economy is bad, but never to retreat in absolute terms, as confirmed by the three previous recessions in the US. Indeed, in the penultimate at the beginning of the millennium, there was even an acceleration.

Ultimately, the crisis does not eliminate the need to have, sell or buy a home and, however much it may reduce the liveliness of the real estate market, there will always be a minimum demand available which in fact acts as a "floor" for prices. , which cannot be taken for granted for financial stocks, characterized by greater volatility and sudden collapse of liquidity in trading.

The property will once again be perceived in the coming months, or perhaps years, as the long-term safe investment par excellence, that is, a certainty even in times of crisis.