From the value of your assets to whether you should go ahead with your next real estate investment - we are here to help with your burning real estate questions.
This is part one of a special series, that answers the top recurring real estate questions from our clients to help navigate these uncertain times and uncover opportunities that may arise.
How will COVID-19 influence property cap rates and the value of my property assets?
The extent of influence of the coronavirus pandemic (COVID-19) on property cap rates will depend on the asset class. Nonetheless, it will be temporary.
Properties of a consumption nature, such as hotels and retail properties, are currently the most affected as their values are likely to decline, resulting in rising cap rates. Cap rates will likely be volatile in the short term. Office properties, on the other hand, are affected to a lesser extent, and logistics and industrial properties will be the least affected due to their economic nature.
Reporting valuations will certainly drop in H1 2020, reflecting tough business conditions and lower overall revenue in most properties - especially hotel and retail developments.
However, given the strong fundamentals of the Singapore economy in normal times, we do not expect many properties to sale below their fair market value.
Should I proceed with my property acquisition plans?
If you have a long-term view and position in the market, this may be an interesting window for an acquisition.
Investors with a long-term horizon, particularly end-users in the office and industrial sectors, could benefit from the current climate, amid lower interest rates and stronger negotiating power. Investors should not look at short-term gains in the current situation, as Singapore is unlikely to see a great wave of distressed asset sales.
If you intend to speculate on short-term property fluctuations -- don't.
Related content: What makes Singapore attractive to foreign investors?
How long will it take for the market to recover?
It really depends on how long the coronavirus outbreak lasts, as the current economic crisis is driven by public health measures, emergency and government restrictions.
Looking back at some major past economic crises such as the Global Financial Crisis in 2008, one clear conclusion was that the drop in real estate values was only temporary – and lasted for much shorter periods, compared to more volatile assets such as stocks and bonds. Real estate valuations rebounded quickly once the economy came back on its feet.
In terms of recovery, we’re talking about a matter of a couple of months after the outbreak is under control; not a couple of years. This is mainly because the economic fundamentals - government budget, financial system, business and consumer balance sheets - are strong in Singapore.
In short, when things get back to normal, the real estate market will be among the first to recover.
You may also like more of our 3 Burning Real Estate Questions Answered series on:
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