Investing money during a pandemic can be extremely frightening, with it constantly lurking and reminding us that life can change in a blink of an eye, and tightening our reins to our spending even more than before. The economic impact for Sri Lanka, has its pros and cons for several industries, and one of the booming markets may surprisingly be the real estate / property market.

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The real estate market consists of rentals, buying and selling and is a constant up rise in the needs of the people at all levels, from the tenancy agreements ending to houses being sold in order to cover expenses or to immigrate and many other reasons.

Some of the growing trends are serviced apartments, aparthotels and extended stay hotels, offering self-contained accommodation which offers guests strict hygiene protocols and more assurance of a consistent and regulated set of stays to avoid contact with people. This is in turn is a new area for the real estate market to look into in terms of short term stays and long term stays.



The work from home or the concept of working from almost anywhere, is another market to tap into with professionals looking for any place with decent Wi-Fi signal. This in turn is an area where there are many is a tourism adapted focus of, giving ‘work-ation’ packages for remote work ranging from high demand in coastal areas due to the non-crowded and refreshing environments to work in. This also offers an excellent opening for serviced apartment operators to capitalize on some of their key strengths of bigger units and locations in the heart of some of the big cities. This digital phenomenon is an opportunity for developers, hoteliers, or real estate agents to maintain and manage serviced apartments on behalf of the original owners with hassle and cost free guaranteed rental return schemes / packages.

 

Higher Returns or Higher Risks?

Real estate is always going to be a physical asset with bigger returns at any given time. In reference to the figure below it shows a 20-year risk/return profile with data collated from 1993 to 2013 (note: Its older data which adapts and doesn’t change too much in terms of risk – and gives a gist of the long term adaptations), which shows that even though there may be less risks with government bonds, it also pays low interest rates. This is a parallel to fixed deposits, with the COVID-19, where all interest rates have come down drastically and the returns on investment is quite low. However, with real estate its price increases over time and with its performance not completely dependent on those who manage it, real estate investments are a lower risk compared to stocks and bonds in the market – giving a huge opportunity for investment.  Along the older data, there is also a 2021 outlook, on projected returns in the next figure, for global assets based on local annualized returns.

Figure 1. 20 Year Risk Return Profile (Thomas Reuters Datastream)

 

Figure 2. Projected 1 year returns for global assets and neutral portfolio (base case) – BAML, MSCI, GSCI, Refinitiv Datastream and Invesco

 

As the next chart, by Investopedia, demonstrates at a global level, both real estate and stocks can have huge hits during recessions and pandemics – the biggest dips being the Great Recession in 2008 and the COVID-19 crisis in 2020. Interestingly with the Real Estate market bouncing back better and with a huge gaping opportunity to invest.

Figure 3. Real Estate vs Stocks 2005 – 2020 (Investopedia)

 

Eggs in one or more baskets?

So here’s a few reasons why you should include real estate in your investment portfolio.

  1. Lower Risk
  2. Competitive Returns
  3. Less Market Fluctuations
  4. Attractive Financing
  5. Better Control



Along with the positives, there are definitely a few factors you need to think before getting started too:

  1. Larger investment – which means you need a sufficient income to get approvals, whether it be buying a property in one go or going into a mortgage.
  2. Longer investment period – it is a long term return unlike stocks or fixed deposits which give monthly or annual returns.
  3. Huge learning curve – you need to know the in and outs of how the real estate market works in order to find deals that are worth the investment as well as learn to how manage a property or rentals.

 

Key takeaway:

The decision to invest in real estate at the end of the day is personal choice depending on your financial worth, risk tolerance, goals and investment style.

Putting all your ‘eggs in one basket’ may not reduce your risk, however real estate is constantly changing and it is always an area WORTHY to find the opportunities as soon as they are ripe, to take advantage of them at the RIGHT TIME!

 

Erandi Narangoda

Erandi is a contributor for The Entrepreneur. She is a Graduate with a corporate setting in Computing and Information Systems including Marketing for 12+ years. Currently she is an Event Planner and a Research and Social Media Consultant for local and foreign clients. She has been a consultant operationally for many startups to build up their brand.

Clayton Durant

Erandi Narangoda

Erandi is a contributor for The Entrepreneur. She is a Graduate with a corporate setting in Computing and Information Systems including Marketing for 12+ years. Currently she is an Event Planner and a Research and Social Media Consultant for local and foreign clients. She has been a consultant operationally for many startups to build up their brand.

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