American real estate, overlooked due to the pandemic, in fact, offers advantages that many other countries do not.
Overview
2020 is truly a phenomenal and unprecedented year, and we are just past the halfway mark and we still do not know how all this is going to pan out. Nearly 200 countries came to a standstill almost simultaneously, economies crashed, unemployment rates have shot up, businesses big and small have folded up, even as the death rate continues its relentless climb.
Of course, there are some industries that have benefitted, especially those in the personal protective equipment supply, digital economy or food delivery service.
Surely, it can be expected that real estate will shift with the new trend and developers will probably design homes that cater for more work-from home occupants, and properties in the suburbs will likely experience a surge in demand.
In times like these, there is also a lot of fear of one’s wealth being diminished or overtaken by circumstances if there is no proper planning done. For example, it was just reported that Malaysia had a 17.1% GDP contraction in Q2 2020, wiping out all the gains for the last four years in just three months!
The ringgit is a commodity currency, and commodities have not been doing well in recent times, hence the weakness of the ringgit compared to other currencies in ASEAN and major currencies in the world.
On the other hand, the greenback, apart from a few bumps here and there, is still holding steady. Why? That’s because the dollar is still the world’s reserve currency by default and it is a safe haven during this time of pandemic. It is still in demand in spite of quantitative easing. In short, the US dollar is not the US economy.
“The dollar is still the world’s reserve currency by default and it is a safe haven during this time of pandemic.”
“If you buy a property off-plan that supposedly has room to grow in value, you are in truth buying into a developer’s vision of the future.”
Dato’ Sri Matthew Yeoh is a practising lawyer in Malaysia and the principal of AMERICAN NEW HORIZONS LLC, a company based in Chicago USA, that manages properties for foreign investors. He can be contacted at matthew_yeoh@yahoo.com or +6012 3220 661.
I would consider protection against further economic setbacks with these strategies below:
Own assets in a more stable currency
In the 1990’s and early 2000’s many Singaporeans invested in Malaysian properties and found that the capital gains if any were wiped out by the depreciating ringgit. That’s one example of investing in assets of a less favourable currency, whereas if one were to hold an asset of a stronger currency, the capital appreciation even if low, is protected somewhat by that currency.
Buy rental homes rather than other real estate classes
If you read a lot of mainstream reports, the picture painted of the US economy is doom and gloom. Being an armchair analyst or a keyboard advisor is one thing, but to understand it fully, one has to be there on the ground. I frequently visit the areas in US that I think make sense to invest, talk to the locals there, observe the happenings and activities, etc to really have a feel of the place.
People still need a roof over their heads, and homes are the last place they will let go. Even if they do, they still need to rent a place for themselves and their families. Rental homes are the safest to invest.
Buy affordable properties for rental
The first sector of residential properties to suffer in a recession or pandemic, are the high end, luxury lifestyle ones. That is a fact everywhere, not only in the USA. People will scale down, downgrade, in times of job or business uncertainty. A lower end property is not glamorous, but it brings you the money because the demand for it is stronger in economic downturns.
“A lower end property is not glamorous, but it brings you the money because the demand for it is stronger in economic downturns.”
Buy completed properties with title
Let’s face it – if you buy a property off-plan that supposedly has room to grow in value, you are in truth buying into a developer’s vision of the future. There is nothing solid or tangible for you at this time.
Invest in something that only you have control over, not a crowdfunded asset
During such times, things can go wrong and very quickly. Even a fund that owns assets in trust for investors is not failproof. Owning your own property gives you the freedom to decide what you wish to do going forward.
The returns on your investment should be backed by government funds
The quality of tenants is important and the system in USA allows extensive screening of the tenant’s credit, criminal and eviction history. What is even better is the US has a nationwide rental subsidy scheme by the government for qualified tenants and this effectively guarantees against any rental payment default because the owner gets paid directly by the government.
The points I made above are all true in the USA. Even with the high unemployment and Covid-19 infections, the many interruptions to their normal way of life in recent months, the trade war with China, and not to mention that it is heading into one of the toughest and most controversial elections within memory, it is still cheaper to own a higher yielding property there than in Malaysia. I will demonstrate how you can own a property in USA for less than $100,000 and still get about 10-12% NET returns per year in my next installment.