Property Market after Covid19

The covid-19 pandemic has swept the global markets and caused countless job losses and companies to go belly up.

While the stock markets have not fully priced in the effects (and more importantly, the after-effects) of this seismic shock, I believe the economy will be slow to restart, and will have to grind its way up over the next few years.

The question I wanted to focus on today, is how the property markets, both commercial and residential, will be impacted worldwide.

Commercial Property after Covid-19

Food and Beverage Businesses

We’ve seen how a pandemic can very quickly escalate, and stop dead in its tracks many retail and F&B businesses. The lockdowns issued by many countries have forced many restaurants to close, and try to pivot to a delivery only business.

My feeling is that after this episode, many restaurants will to pivot their business to be more cloud delivery focused, and dine-in locations will be drastically cut down in size. Think 50% of pre-pandemic seating, to cut down on rental.

Cloud kitchen businesses will grow out of this, and I believe demand for this will be a lot more substantial after covid settles. In Singapore, we have a few major players with cloud kitchen products, including Grab, Foodpanda, Deliveroo and Smart City Kitchens (SCK) with a total of 7 kitchen locations currently between them.

Office Space

The pessimists will call this the greatest pandemic of our time. The optimists will call it a global experiment in telecommuting. Results of the experiment? Inconclusive.

BUT extremely useful for companies to realise that they don’t actually require 100% of their staff to be in the office, 100% of the time. I think after this, a lot of companies will take a long, hard look at their leases, and this will actually benefit WeWork (they need all the business they can get) and the like, as companies look to scale down the size of their offices, and rely more on shared workspaces for instances where onsite brainstorm or workshops need to happen.

Residential property after Covid-19

The 2007 Subprime crisis unraveled as a result of irresponsible lending on the part of banks, which resulted in high default rates that then reveberated across other banks who had exposure to mortgage backed securities (MBSes) and collateralized debt obligations (CDOs).

Here’s Anthony Bourdain explaining CDOs from the film, The Big Short. RIP.

And Richard Thaler and Selena Gomez explaining Synthetic CDOs.

But wait, what does the 2020 Covid pandemic has got to do with the housing bubble of 2007?

Well, we’re not seeing the same exact thing re-enacting, but I think it’s going to be close. With Covid-19 nowhere close to getting closed out and resolved, we have millions of people in the US and elsewhere getting retrenched and being out of work.

The recovery, even if we get to the best case scenario of a vaccine in 2021, will be slow. Companies who took the opportunity to downsize will not be in a rush to bloat up again. Hiring will be slow on the uptake, and companies, having learnt from this, will want to make sure their cashflow is good before ramping up on jobs.

This means a lot of people will remain jobless. With no income, they can’t keep up their mortgages, and will start to default.

Also, banks never ever learn their lesson, or rather, they have learned the wrong lesson. The lesson they took away from 2007, is that if things go bust again, well, the Fed and central banks will just come to their rescue. Again.

The CDOs that blew up the bubble? Well, they’re gone now. Only to be replaced by CLOs (Collateralized Loan Obligations). So even as the economy slowly recovers, I see an increase in mortgage defaults leading to another property crash, or at least a severe correction in the housing market.

Elon Musk sells his Earthly properties

Don’t take it from me. Even billionaire Elon Musk is reportedly selling all of his properties, estimated at a value of roughly US100M.

Is he also seeing a short term downtrend in property, or is he looking at bigger fish potentially down the line, that can negate the existing global property demand?

We all know that Elon Musk plans to send 1M people to Mars by 2050. Although the timelines may be off, history suggests that what Elon says, he delivers.

What if he’s offloading his properties now, because in 2050ish, people will want to live on Mars instead of Earth (cos Earth may be too hot by then, or that land may be at risk due to flooding and climate change?), and that property values on Earth will effectively go to zero?

I don’t know man. Think about it. Might want to consider selling your property now and keep the money for a one way ticket to Mars.