While traditional financial investments no longer offer prospects for profitability, investors are looking to grow their money. Alternative assets are therefore favored, even if it means taking more risks.
But since mid-January, the Covid-19 pandemic has significantly reduced the prospects for global economic recovery, making investors less inclined to invest in risky assets. Conversely, real estate is doing well and is even becoming a safe haven compared to stock market shares, which suffer from their volatility.
A Financial Market Spiraling Out of Control
The Stock Market in Free Fall
On the market, panic has reigned for several weeks. Stock markets have plummeted dramatically; in one month, the SMI shows -27%, the DAX drops by 36%, the DOW JONES by 31%, the NASDAQ by 29%, and the EURO STOXX 50 by 30%.
Unlike the 2008 crisis, it is not the stock market crash that causes the economic crisis, but the decline in economic activity that causes the financial crash. The problem at hand is the risk of a vicious circle in which the stock market crash further slows the economy, making recovery very difficult once life returns to normal.
Towards the Closure of Stock Markets?
To limit the damage, some are calling for the closure of stock markets. This step has even been taken with the closure of the Philippine stock exchange from March 17 to 19. Wall Street, meanwhile, has been suspended three times since the beginning of the crisis. The goal of these closures and suspensions is simply to halt all transactions to avoid a total collapse of prices and a more difficult recovery afterward.
For some players, closing the markets is not a necessity, but it can offer certain advantages. A research manager at a French bank who wishes to remain anonymous believes that "The price of a stock is supposed to represent the company's future earnings. For that, we need quality information, for example on the duration of government measures or their impact on the economy, which we do not know." Thus, suspending the stock market could at least allow time to observe the trend.
This general panic in the stock market perfectly demonstrates the volatility of shares and the risks faced by investors.
Why Isn't Real Estate Suffering?
Interest Rates at an All-Time Low
Central banks are already offering rates at historic lows, and they will continue to do so to enable the distribution of money at attractive rates. The goal is to revive the economy with "cheap" loans. For example, the European Central Bank announced on Thursday, March 12, that it would maintain its rates, which are already at their lowest. Real estate investment will therefore be favored thanks to attractive rates allowing for interesting profitability.
The Swiss National Bank stated in its press release on March 19, 2020: "The coronavirus presents Swiss society and the economy with extraordinary challenges. Uncertainty has greatly increased worldwide, and the outlook for the global economy as well as the Swiss economy has darkened considerably. The franc has appreciated again, and global financial markets are under strong pressure. In this exceptional context, the expansionary course of the Swiss National Bank's monetary policy is all the more necessary to ensure appropriate monetary conditions in Switzerland. The Swiss National Bank (SNB) is leaving its policy rate and the negative interest rate applied to sight deposits at the SNB unchanged at -0.75%."
Rental Market Marked by Stability
Rental investment, especially in residential real estate, is characterized by stable returns. Indeed, even in times of crisis, tenants continue to pay rent. This is the exact opposite of company shares, which depend directly on the profitability prospects of the company and can change at any moment. Furthermore, rental investment through crowdfunding provides additional security by spreading rental risk across all investors in a building. Profitability is thus ensured.
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Recently, Imvesters has offered the opportunity to invest via crowdfunding in the Moulin de Cugy. Investors who take the plunge have not suffered any financial loss and receive a 7.29% income paid monthly, an exceptional return and confirmed commercial solidity even during a financial crisis.
This profitability is made possible thanks to rigorous selection and thorough analysis of real estate project files.
Lockdown
Even confined at home, real estate provides significant financial security; it is a necessity that everyone owns, and rents must be paid. Although some agreements have been made regarding rent payments, losses remain minimal, and the government supports and protects the country’s economy.
Key Takeaways
Investment in rental real estate remains a safe bet, even in times of crisis, as it offers excellent stability of returns. By spreading rental risk across multiple tenants and owners, real estate crowdfunding provides additional assurance for investing with peace of mind.
