How is luxury real-estate adapting to a COVID-19 world?

Social distancing measures have slowed property transactions across the globe to a trickle. Levels are anticipated to be 40% to 50% lower than 2019, but this trend is expected to reverse fairly quickly, especially with the introduction of unprecedented government stimulus. In the short term, prices in prime locations such as London, Paris and Geneva are expected to see only modest falls in value, ranging from 0% to 5% (figure 4).

Depending on how their governments responded to the pandemic, some countries look more attractive than others. For example, Portugal restricted travel to second homes, while France didn’t. With the pro-investment backdrop in France and 90% of buyers and sellers looking to restart their house moves, the environment should support prices over the medium term.

Ahead of COVID-19 there was increased activity in the South of France. Enquiries from Belgian, Swiss and German buyers have been noted, as well as Asia-based expats looking for a holiday home in the region.

Prices in prime central London have already been under pressure for the past five years due to the government policy changes described above. Arguably there is less of a buffer for prices to fall when the lockdown is lifted and other restrictions loosened. Although international travel restrictions are likely to dampen activity in the near term, prices are expected to rise by 20% over a five-year period.

The Swiss market has benefited from a flight to safety during previous economic downturns, which may explain the recent increase in the number of potential buyers enquiring about property in Geneva. The country offers a secure economy for investors and a safe environment for families, while the strength of the Swiss franc continues to play a part.

Over the long term, real estate has outperformed almost all other asset classes, and delivered returns that are much less volatile than the stock market. This trend is expected to continue, as home buyers and investors ensure their asset allocation is diversified (figure 5).

Cornerstones of value – such as excellent education systems, connectivity, transport hubs and stable governments – should continue to underpin value in prime locations, such as those in France, Switzerland and the UK.

Investment will be another key driver of value over the longer term. The Grand Paris Project, a $26 billion investment in transport networks in and around Paris, as well as the 2024 Olympics, are expected to support property prices in the city.

Similarly, investment in infrastructure in mountain resorts, particularly in Switzerland, has led to outperformance over the past few years and is expected to continue.

Changing landscape

Like many other areas of the economy, the property market is adapting to the lockdown. There’s already been an acceleration of the trend to streamline the way we buy, sell and advise on transactions by adopting new technologies. The latest software enables potential buyers to take virtual tours – even using drones – while vendors are being encouraged to take photos and videos of their properties.

Over the longer term, the way we use property is likely to change as a result of the pandemic. With air travel unlikely to be back to normal until 2021, homes that are easy to reach by road or rail look more attractive. European cities with lots of parks and open spaces, as well as those that offer quick access to the countryside, have particular appeal.

The lockdown has encouraged many of us to reassess our priorities. Families that have come together under one roof have rediscovered how important it is to have a safe place to sit out the pandemic. There’s already been increased interest in properties in rural areas with more outside space, which provide the perfect escape for large families.

In the commercial space, there are questions about the future of the office now that so many of us are working from home. Sustainable investing is also likely to be an increasingly popular theme as businesses look to rent or buy the most environmentally friendly buildings they can find.

The size and shape of the commercial real estate market continues to change. The transition away from the three traditional sectors of office, retail and industrial to alternative properties is likely to gather pace. This shift is creating many other opportunities for investors – from warehouses for online sellers to student accommodation and a wide range of buildings for the healthcare sector.

Global capital flows into residential and commercial property have been significant over the past four to five years. However, in the short term, travel restrictions are likely to encourage investors to look for opportunities in their domestic markets rather than overseas. Those with cash ready to deploy will be in the best position to react quickly as opportunities arise.

Seek specialised advice

Real estate offers a sense of comfort when looking to preserve and grow wealth. Whether buying a second home, an investment property or giving your children a head start in life, there’s a lot to think about – particularly when you haven’t grown up in the country where you are purchasing. Every jurisdiction has its own regulations and taxes, depending on how you intend to use the property and eventually either sell or pass it on.

It’s important to consider your financial goals and explore the various options with your professional advisers so you can structure any purchase in the best possible way. At J.P. Morgan, we’re finding solutions to help you navigate today’s challenging environment, ensuring you are driving efficiency from both sides of your balance sheet as well as taking advantage of low interest rates as we have the capability to finance high-value residential real estate in certain jurisdictions.

Visit us online at JPMorgan.com/high-value-mortgages