Part One | Pandemic-Triggered Trends
There is one fact that we can always count on. Nothing happens without consequences. Even if they are not seen or felt for a time while events play out, the point will come when an informed eye will spot the trends and begin to make sense of them.
Let us apply this principle to the local real estate sector. What is going on there as a direct or indirect result of the local and also global shut-down of the economy?
First and foremost is the immediate slowdown in the volume of normal real estate activity.
In a crisis, which this clearly is, the last thing the average consumer is going to do is enter into a real estate transaction unless they have to or are already committed to it. There are far too many other matters to deal with that are literally life-threatening, or an economic threat.
But did all real estate activity cease?
No, it did not. But it changed, and what was observed right away was a preoccupation with rental property as tenants experienced relationship challenges, child abuse, or found it harder and harder to meet their monthly payments and had to move out of rental accommodation, or at least try to find a lower rent. The same pattern was seen in commerce where business slowed and staff were sent home and rents could not be afforded or space became too much to handle.
There was another area of activity, however, that was less predictable, and that was the sudden interest in owning a second home, or a retirement home in the islands. Pure reaction to the fear and restrictions experienced by so many people during the worst of their lockdown time in their country of residence. As the pattern of activity solidifies it is clear globally that a section of the population, perhaps a whole generation, have chosen to move out of towns and cities and find healthy connection again in the countryside.
In our Region, the West Indian diaspora has begun to think fondly of home. Either to retire, to put some spare capital to work, or for the security of having a “bolt hole” for future use at times of crisis. An escape from a system that can be immobilised at times like these, to a way of life so much simpler that it is possible to maintain it and to even become relatively self-sufficient even during a crisis. And the weather is better and fish straight from the sea!
There is also a financial side to this market development, pushed by (a) fear of what would happen to savings in an economic collapse, so move some capital out of harm’s way, and (b) in the case of excess liquidity, put your funds to work in a totally different market and spread risk as interest rates drop.
Bloomberg, the multi-national that describes itself as a purveyor of business and financial information, news and insight around the world, recently reported on global house market indicators and had this to say :
“A cocktail of ingredients is sending house prices to unprecedented levels worldwide. Record low interest rates, unparalleled fiscal stimulus, lockdown savings ready to be used as deposits, limited housing stock, and expectations of a robust recovery in the global economy are all contributing. Stay-at-home workers in need of more space and tax incentives offered by some governments to home buyers are also stoking demand,”
Sadly this paints a quite different picture from the reality of T&T in pandemic mode. Interest rates here are higher than the average lows internationally, there has been little to no fiscal stimulus available, and there is no expectation of a robust recovery. We have little to “go back” to.
It is estimated by real estate professionals and valuers that the past 18 months has seen a possible 10% to 20% drop in property values in T&T. Prior to the pandemic, values were hardly robust, so stock value generally has been depressed for a while thanks to the unstable oil and gas markets and continuing failure to diversify the economy.
Of course prices will rebound, once the crisis has passed, vaccinations have reached the right level of the population and our ports open again. If people can get back to work, given the number of business failures recorded, demand will surge and everything will begin to right itself. Well-known local valuer Mark Farrell has researched the recovery experienced after the housing crisis of 1985 to 1995 and estimates a drop of 50% followed by recovery and a 200% new growth. The crisis of 2008 to 2009 was less dramatic with a drop of around 20% and then recovery + 20% growth. Whatever the precise figures, it is a natural phenomenon for markets to fail and recover, to lose value and to boom.
The critical factor is what triggers that recovery and further growth? Will relief at being let out of our houses do it? Getting back to work at the old firm or starting up a new business inspired by the pandemic? Or perhaps we can rely on government to incentivise in whatever ways possible, and there are countless international models for how that is being done internationally.
What demand will there be? Will there be any ex-pat demand in Port of Spain, or tourism development demand in Tobago where the industry has collapsed. Or can we stir ourselves to attract new foreign direct investment (FDI) which is apparently plentiful throughout the islands to our North? Will we make the effort? Will we put an end to the offhand way in which we “welcome” potential investors, and improve our fiscal incentives to levels offered in the Region? Leadership has to be shown by government and/or the private sector, both of which have everything to lose at the moment. A public/private partnership is obviously the most effective.
Partnership, however, take time to establish and it would be wise in the meantime for individuals, firms, Associations, basically the people of T&T, to invest time now in their own recovery and future prosperity. Business acumen, international experience and rugged determination are called for. A cocktail of ingredients, to use Bloomberg’s phrase, and we should all start mixing.
In Part Two we will look at some recovery strategies for the real estate sector.
AREA is currently the Governing Body of the Real Estate industry in Trinidad and Tobago, established under Section 2 of the Association of Real Estate Agents (Incorporation) Act, 2012.