Covid-19 Impact On Travel
The global lockdown is starting to ease, but there are still many countries who are yet to open their borders. In Panama, for example, there is no end in sight to the international lockdown.
The return of international travel will help, but there may still be problems. It’s possible that governments will insist on a quarantine. It’s unlikely that anyone will travel overseas for a vacation under these conditions.
For the tourist rental market to recover, we need for COVID-19 to disappear, or a vaccine to be found and widely distributed. Estimates vary but recent news stories indicate there might be a rollout next year. The tourist rental market will recover when COVID-19 is got under control and not before.
You can expect real estate prices to fall a lot in popular tourist areas. There were plenty of landlord who bought 2nd or 3rd homes relying on rental income to pay the mortgage.
Covid-19 Financial Impact Could Boost Domestic Rental Market
At the time of writing COVID-19 has yet to impact the global economy in a major way. It’s possible though that major disruption is close.
The supply chain, for example, took a major hit. It seems like the impact has been absorbed, but who knows the result if it happens again?
The U.S. government has sent stimulus checks to tide people over while they can’t work. This is working for now, but sooner or later the money will have to stop. What happens then is unclear. The situation is similar in most of the world’s countries.
Many small businesses have been closed for months. In places where restaurants and bars can open, they have to reduce capacity for social distancing measures.
All this points to an uncertain financial future. Young couples and other people thinking of getting onto the housing market will probably be tempted to wait and see what happens.
This is good news for the domestic rental market. A rental property aimed at the local market is likely to remain in-demand. These rentals are typically long-term which can provide landlords with a guaranteed source of income. While the returns won’t be as high as in the tourist zones, the security is vital during these times.
Other Considerations
Assuming it’s safe, and that people have the money to spend, it’s likely that just about everyone in the world feels like they could use a vacation.
Before the COVID-19 lockdown, city breaks were dominating the vacation market. Airbnb was at the heart of this trend. COVID-19 looks likely to reverse this. People have been locked up in their houses for months and want a change of scenery.
Rural holidays and places where people can enjoy nature are likely to be popular. With finances likely to be tight, expect people to spend more time at the beach, hiking, or enjoying cycle routes.
Cities will always draw tourists, and will surely bounce back. But the market was oversold and likely to suffer in the short-term.
COVID-19 is likely to accelerate the process of moving on from physical cash money. With most of the world now owning a smart phone, new economic era seems to be just around the corner. Digital payments could make moving money across borders easier than ever. By making it easier to buy overseas, prices could rise with new money coming in from across the world.
Working from home could also come into play. The trend towards remote working will probably continue. Will people try to work from a home overseas where they can be close to the beach? This is another factor that could increase property prices in certain markets overseas.
Conclusions
Like everything else, we’re looking at a new normal for the tourist market. The days of using Airbnb rental profits to pay for a mortgage are over. That model was never something we recommended, and unsurprisingly it has come crashing down.
Expect rural rental properties to do well, at least in the short term. If you’re able to make investments with an eye on the future, there will be big opportunities to buy undervalued rental properties. It’s almost certain that lots of markets are going to see a sharp correction.
Now is the time to identify the kind of markets you want to invest in, and do you’re due diligence in the type of areas you want to buy. Work out your target rental market, and be ready to act when the price is right.
Oliver Lovett
