The coronavirus pandemic has put the world’s economy on pause. Will it be a temporary lockdown, or will the world’s economy find a way to function together with the virus? It is hard to evaluate the consequences of these events yet. But it is great to be aware of the challenges before it is too late. Here’s Reinvest24 take of the current situation. 

At Reinvest24 the risks have always been our top priority when it comes to selecting investment projects. Since the very beginning of the platform’s launch, we were sure that we will face a period of crisis. Besides, we have always considerate that when choosing an investment property. This is why Reinvest24 has been focusing on real estate equity and not loans. Because we believe rental properties will be more sustainable throughout the market cycles. We published many blog posts about this topic in the past. We highly recommend you to read the post we published a year ago.

An update on the real estate market situation

We observed the real estate market in Tallinn very closely and here are some of our conclusions on the impact that the current situation is having on the market: 

Residential properties

Considering the fact that living spaces are one of the primary needs of humans, no viruses or economic recession will take away the demand. Of course, it does not mean that short-term corrections on the market cannot occur.

Before the pandemic started, the demand for apartments was clearly higher than the supply in Tallinn. For example, new developments were mostly sold out even before they were finished. Currently the biggest risk factor on the market is coming from the AIRBNB short-term apartments. In 2019 the total offering for short-term apartments in Tallinn increased from around 1500 to 2500. Within the past 1-2 weeks this number has dropped around 300. Instead of short-term rent, the apartments are on the market for long-term rent. If this lockdown continues and tourism high season gets cancelled in Tallinn, then a lot more of the AIRBNB apartments will be switched from short-term to long-term rent. The increasing supply will create a huge pressure on the long-term rental apartments market in Tallinn. This has been one of the reasons why we have mostly focused on commercial properties. 

On the other hand, if we compare the current situation with the housing crises back in 2008, the big difference is its source. This time it isn’t coming from bad quality mortgage loans, overvalued collaterals or even not from economic problems. The crisis can grow into all of those problems. But currently, it is not coming from the rapid decrease in demand. It is actually the opposite. While the countries close their borders and factories shut down, it causes shortness in supply and banks are evaluating the situation differently. The banks in Estonia stated that they will not start to aggressively liquidate the default mortgages loans. However, they rather give the loan owners who lost their income a grace period to recover. 

Another take from the previous crises is that when the number of property sales drop, the demand for rental properties will increase. So most likely the pressure that is coming to the rental market from AIRBNB apartments will be temporary. 

Commercial properties

Obviously, the retail spaces that are dependent on the tourism sector are under big pressure. There are a great number of smaller size businesses who are already facing some difficulties. As of today, we have only one this kind of property – the Restaurant property. One of its biggest advantages is that they are not dependent on tourists and are rather targeting the local Kadrioru high-income residents. Besides, the owners of the restaurant have been through the 2008 crises and manage to come out of it successfully. 

This is also the sector that the governments are focusing on the most and currently putting together “help packages” in order to help them survive this stagnation period. These “help packages” simply mean that the central banks will be increasing the supply of money. The Federal Reserve with $4 trillion financing program and European Central Bank with €750 billion emergency purchase program. The bigger picture is that in long-term this will create inflation, that will result in increasing value of assets like real estate. Read more about this topic from one of our previous blog post.

Regarding to commercial spaces like offices, we don’t see that the impact will be big. Especially, when talking about the properties where the tenant is an established tech company. The current period could actually trigger a huge growth for online businesses. With the current lockdown a lot of people are working from home and some offices are not being used, but this trend will be temporary as we don’t see that the current situation will reshape the work culture. What will most likely happen is that the older office buildings that are in bad conditions, will be struggling to stay in competition with modern ones and could face some vacancy.

What about Reinvest24?

Reinvest24 is an online business and we are fully functional even if this lockdown remains for a longer period. Our dream team is working from home, thus continuing to ensure the best service and support to our investors.

We believe this situation may give us an opportunity to find better deals that weren’ on the market during the high growth times. For example, the latest investment property would not be on the table at this price level without the current situation. These days we see, that mentality of businesses starts to change and instead of investing into real estate for their offices or business, they now prefer to rent and invest money into their business. Either buying better equipment or investing in new technologies. Some businesses will be selling their real estate to free some capital in order to cover operational expenses or to invest in expansion. Altogether these aspects will increase the rental demand for office spaces, just like it did in the last crises. And we will be there to offer you the best secure investment opportunities.

Stay safe and prosperous!

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In economics, inflation is ‘a sustained increase in the price level of goods and services in an economy over a period of time’. In simple terms, it means prices are going up and the value of your money is going down. Things like the supply of money, a country’s national debt and increase in demand all play a part in rising prices. In the European Union, the average inflation rate is currently 2.2%.

The key to beat inflation, however, is to gain more money with the capital growth of assets over long-term periods. And earn more money from higher prices over short-term periods. By investing in real estate with Reinvest24 you become a part of the value chain, adding more value to real estate assets and hence, increasing profits. In other words, the higher the inflation, the higher the prices, which means earning more from rent or development.

Things keep increasing in price

Every year your money is losing its value. Once upon a time, 100 euros was considered a substantial amount of money when the price of a coffee was below 1 euro. These days, 100 euros won’t get you as far, considering the price for an average coffee is 2.6 euros. The positive side to inflation includes people buying more now rather than paying more later, as well as keeping demand stable, avoiding the problems caused by deflation. Nevertheless, your money is losing its purchasing power every year. And for you, this is a problem.

Central banks try to boost the economy

Quantitative easing is ‘an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply’. This promotes increased lending and liquidity to ‘boost the economy’. However, when short-term interest rates are around 0% and lending reaches a peak, the demand-pull inflation occurs; when the demand for goods and services increase faster than the economy’s production capacity.

More and more money is printed every day

Furthermore, countries like the United States print as many banknotes as they need to create a greater supply of money. And with a fixed amount of goods, this again causes inflation. This is deliberately done to get inflation between 2-3%. Central banks believe that an inflation rate around 2-3% is healthy for the economy and stimulates markets to operate more efficiently. On the other hand, one of the major side effects of continuous rising inflation includes higher loan rates in the long run. And it translates into higher living expenses with lower capital value.

Inflation is higher than salary growth

Salaries tend to increase over time, but not nearly as much as inflation. Wage growth in the European Union averaged 1.91% from 2009 until 2018, with a significantly higher inflation rate at 2.46% from 1997 until 2018. Overall, your salary may increase slightly, but prices increase even more. And when the price of raw materials such as oil goes up, so do the prices of the majority of services. Consequently, the overall prices of products and services in a given market will rise in response. Hence, your money constantly buys you less than it did before. 

Your bank account’s interest rate isn’t enough to cover your losses

If you keep your money in your bank account you can get between 0.1-0.5% interest on your deposits. And it, unfortunately, doesn’t even cover the current inflation rate. In other words, you’re losing more than you’re gaining. So, despite the fact that you are ‘saving money’ and getting interest on your deposit, you are actually losing money. Understanding and reacting on these principles is the difference between financially fit people who become wealthier over time, and those who lose the value of their money, becoming poor.

Investing in real estate can help you fight against inflation

Depending on the market, the average real estate market growth can be higher than the inflation rate. For example, the current inflation rate in Estonia is 3.7%. However, the current market growth is 6%. Therefore, by buying real estate and investing your money in property, you are actually beating inflation and covering your losses with long-term capital growth. Furthermore, when you invest in rental properties you also get monthly rental yield as passive income.

Reinvest24 takes all these matters into consideration when choosing the right investment properties, constantly benchmarking our potential real estate against the market, previous investment projects, and the current inflation rate. By investing in real estate with Reinvest24, you will beat inflation and secure yourself a healthy long-term investment portfolio, which will grant you wealth from passive income (monthly rental yield) and capital growth, with a total combined return of 14.6%.

Become a real estate investor today and forget about inflation

In conclusion, if you’ve got money sitting on a bank account and you want to increase it, your main and only goal should be to increase your capital faster than the current inflation rate. It’s also important to control your investment risks and make sure you place your money in assets that appreciate over time. Reinvest24 provides investors like you with the perfect opportunity to beat inflation and increase the value of your capital.

Real estate provides the lowest risks compared with other investments like loans and stocks. Our carefully selected investment properties provide you with the best returns available on the market. Start today, invest in real estate starting from 100€.

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Real estate values generally always increase in the long run. The gentrification of cities, growing population rates and increasing demands for accommodation around the world are causing prices to move upwards each year. Our expertise is based on the European real estate market. And from what we know, the price index for real estate in Europe has been going up over the past 5 years, reaching an all-time high of 111.42 index points in the first quarter of 2018.

Growing populations spike demand

According to the most recent projections by the United Nations, the global population will rise from 7.6 billion to 11.2 billion people by 2100. It’s safe to say that the world won’t get any bigger. But it definitely will get more crowded. This all plays a part in determining the increases in real estate prices. The emergence of new destinations and markets are also playing a role in growing property prices.

For example, in the United Arab Emirates, Abu Dhabi only had a small population of 25,000 people back in 1960. However, today it’s a booming metropolis with almost 2 million people. That’s a lot more people who need housing. Understandably, real estate prices also increased together with the demand and population.

Some people can afford more

This obviously depends on the country, but in our market here in Estonia, things are looking up. A recent study about the housing market in Estonia, conducted by leading banking company Swedbank, discovered that households have more purchasing power. The growing confidence of real estate buyers also increases the demand for residential property as well as investments in property. 

According to Statistics Estonia, on 1 January 2017, there were 706,000 dwellings in Estonia, of which 76% were occupied. Compared to 1922 when there were 252,000 dwellings in Estonia, the number has nearly tripled. When people have more purchasing power, this increases the demand for property. Hence, prices go up when the supply of desirable property is limited.

Nevertheless, even if some countries are experiencing an increase in their GDP, the price growth of the property is still a lot higher than the growth of wages. And even the growth of inflation. According to Eurostat, house prices in the EU went up by 4.5% at the end of last year (2017), yet salaries (at 2.02%) and inflation (currently at 2.1%) are lagging behind. So, prices are increasing, but not necessarily because people are getting richer. It’s definitely more about the increase in demand.

Keeping up with inflation

Real estate prices give inflation a run for your money. As mentioned above, the inflation rate in Europe is currently at 2.1% according to Eurostat. And at the moment, the real estate growth rates in Europe are well passed the 2% mark, they’re actually over double. So, for anyone worried about their money not having as much purchase power in the next few years, investing in real estate is a great way to fight the system. And ensure an increase in wealth over a long-term period.

Investing in real estate is definitely one of the safest ways to fight against rising inflation. With Reinvest24, you can enjoy a 14.6% average annualised return based on rental yield (ca. 8%) and market growth (ca. 6%). Furthermore, the world’s population growth and its correlation with real estate prices keep things in check with the good old law of supply and demand. This means you will surely benefit from capital growth and beat inflation over the years.

Globalisation means the world is your oyster

We live in a very international world these days. Most borders are open and with the Schengen Agreement, residents from any European country are free to travel, live and work in other European countries since the internal border practically don’t exist. Hence, you have people moving to other EU countries, increasing the demand in some European markets more than others. You also have domestic growth with people moving into larger cities from smaller towns and rural areas, which increased the demand and price of real estate in urban areas.

Globalisation also means that wealthier people can move to less expensive countries to buy or invest in a property where they will get more value for their money. At least in Europe, where you can live anywhere and definitely buy anywhere if you’re an EU resident. The world is simply at your feet when it comes to real estate. In Europe, 2.5 million homes belong to people living in another EU Member State, and several million Europeans no longer live in their country of origin.

Reinvest24 provides opportunities for international investors from anywhere in the world to easily invest into the Baltic real estate market. You can invest in property with the biggest development potential and enjoy a monthly rental yield without ever needing to visit the real estate you invest in, or deal with the property management. Our team of real estate professionals take care of all the everyday maintenance, while you sit back and enjoy the profits of your investment.

Real estate prices will keep rising

Globalisation, inflation, population growth, increasing GDP and personal income/purchasing power are all increasing the demand for real estate and setting up a trend for its growth. If you invest in real estate that has a good location and development potential, you can easily receive a 100% profit from capital gains within 8-10 years. What’s more, you can enjoy rental yield every month, which allows you to cover management costs and keep reinvesting.

So, indeed, there are many reasons why property prices grow and always will, but the greatest correlation is still between the growing worldwide population and the consequent increase in real estate prices. After all, we all need a place to call home. From a financial point of view, investing in property can help you beat inflation.

Invest in real estate today

Are you looking to make an investment in real estate? The Reinvest24 platform is a safe place to invest your money in European property for long-term capital growth. The growth of our investments is supported by fundamental analysis and research. Our Reinvest24 team constantly analyses the current real estate market, searching through all the investment trends and choosing only the best real estate investment opportunities available.

By investing 15K into real estate with Reinvest24, you can become a millionaire in 30 years. Simply by reinvesting your 8% rental yield and capitalising on ca. 6% market growth each year, you will have 1,000,000€ before 2050. That’s the beauty of making a long-term investment in real estate. Discover our exciting investment properties with attractive monthly rental yields and high returns from capital growth when exiting the investment, and become a real estate investor today. 

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