What would happen in the real estate market when COVID is over?
Prices climbing as the pandemic continues. Is this going to last forever? Is this time going to be different?
The price of real estate is jacked up. One year after the pandemics people stop spending, saving their cash, and turning consumer businesses belly up. The fed prints money and gives loans to businesses, corporations, and people. The vaccination is ongoing and maybe we will have a post covid life this summer.
So what will happen when people will start spending again? People hedge against inflation of asset prices by buying assets like real estate, stocks, and even bitcoin. But what will happen once this is all over when people can go out and grab a 10 bucks coffee at their local Starbucks, or eat out in family in the local restaurant, or go overseas for holidays? People will need cash and will sell their assets, people will sell their stocks and if the housing market sees a little sign of a downturn, people will start selling off.
Scary isn’t it? What can we do? If you’re eager enough to take a house loan with a 25% premium and you’re optimistic enough that after expenses (registration tax, realtor commission, etc which will account for at least 15% or more) you can flip that property before the crash (could happen anytime, the quicker you flip the better), well you’re good. The price of your property would need to rise by at least 40% just to break even. In 2020 the price raised by 16%. It’s quite unrealistic for me. The risk is way too high for the reward.
But if you’re right, the price continues to rise and the money continues to lose its value, well you will be rewarded for having taken that risk. Yes, taking risks needs to be rewarded. In Switzerland, you can rent houses to illegal immigrants and perceive a premium for the risk you take because of their situation as long as you don’t go above the maximum usury rate allowed. That’s the best example I can remember about the reward we’re kind of entitled to for taking actions, taking risks. Because without actions, we wouldn’t live in the world we live in today. Only one entrepreneur survives out of ten. If nobody takes action, well there will be no job (yes being a business owner is a risky job).
In conclusion, I’m not taking the risk in real estate personally. But if you like risk and reward, be sure to make calculations and know yourself. I’d rather focus on creating values in the future by creating useful products and services.