The year we have just lived through was unprecedented. The impact of the coronavirus crisis was such that even levels considered deep enough to be impervious to any external disruption to their markets were affected eventually.
While 2020 has left us with its share of uncertainties, 2021 should be a pivotal year in which foundations are laid for new thinking, different attitudes and fresh perspectives. The property investor will have to pay attention to current and, above all, future trends, because the property market in 2021, like any investment, involves betting on the future and taking a chance on tomorrow.
In this letter, we will try to analyse the various opportunities that exist at the moment, especially those that may arise due to the COVID crisis. Faced with this situation, we will try to take stock of the risks it is possible to predict. But even if the future remains uncertain, of one thing we can be sure: property will continue to be a safe haven with a degree of resilience against the various upheavals and confusions that may arise. But you still need to know what to invest in…
The various opportunities we envisage are not new but are further strengthened by the crisis we face. The residential market is consolidated by its stability and resilience and faces an ever-increasing demand for rentals due to the new complexities involved in home ownership. Meanwhile, logistics is being boosted by our new consumer habits and is seeing its popularity further impacted by institutional, professional and even semi-professional investors who see it as the future of property investment in the tertiary sector.
“ However, the real opportunity that we envisage on the property market in 2021 will undoubtedly benefit owners/sellers! ”
Indeed, one would be justified in foreseeing an increase in supply due to a growing need for liquidity on the part of some owners, but we have strong doubts about this hypothesis. While some owners will have no choice but to hedge their assets, their numbers will remain very small and have little effect. Interest rates are still and will remain at rock-bottom levels for some time, allowing for unrestricted use of leverage. And even if the conditions for financing become increasingly strict, demand will always grow more robust.
Faced with this, more and more investors are responding, eager for stability and asset diversification.
Consequently and as we have stated above, this finding could only be considered as an opportunity by owners/sellers who will be marketing their properties in the context of a total imbalance between supply and demand. So, if you are a seller, and what you have to offer matches popular demand in one way or another, this is your lucky day! Currently, the imbalance is such that whoever is selling holds all the winning cards. And this opportunity to get the best price will only increase over the coming months. So if you plan to realise your assets immediately or in the long term, we can only advise you not to delay; this is the ideal time.
Given the current situation and the growing debt generated, we should expect in 2021 a tightening of the tax system as it applies to property to fill the holes created by government cash injections. Let us not forget it is generally said that Belgian taxation is relatively flexible and that the property sector falls through the tax net. Remember, as long as you are a private owner and you make a property available for private housing use, you will not be taxed on your actual income (= rental income) but on the cadastral income, increased by 40%. So far, especially in view of what is practised in neighbouring countries, the scheme does indeed appear to be relatively advantageous. However, looking at property taxation from the point of view of income taxation alone means that you do not have to pay any entry ‘fees’, in other words, registration fees.
It should be noted here that Belgian registration fees, or at least those charged in Wallonia and Brussels, are the most expensive in the world! Taxation could therefore not be touched without adjusting this one-off cost drastically!
We might also fear a deterioration of the property rental market in 2021 due to new home working habits, and the massive departure of a significant number of European civil servants whose physical presence would no longer be necessary in our capital. However, this effect is not admissible and may be counterbalanced by a relatively recent phenomenon: a significant return to renting by a large part of the population. For them, access to home ownership is becoming increasingly complicated following the new measures taken by the European Central Bank and the Belgian National Bank in terms of granting mortgage loans. Indeed, it is now a given that any candidate for ownership will have to contribute at least 10% of equity capital plus registration fees and other ancillary costs. Borrowing 120% is no longer possible, and you will therefore need to have at least a minimum amount of cash in hand if you have aspirations towards ownership.
So, should we invest in the property market in 2021?
Apart from these two hypotheses, which seem implausible to us for the various reasons stated above, we believe that the real risk lies with investors themselves. For them, the pressure exerted by growing demand is bound to disrupt the stability of prices per m2. Now everyone wants the same thing in the same place. And some investors, newcomers to the market, are willing to pay a high price to claim a much-coveted minimum return. As a result, some neighbourhoods are very likely to see property values skyrocket. The effects of this will be inexorably added to rents, and the result could be seen by any measure as a frail bubble that could burst abruptly.
On the strength of this finding, it is therefore important, even crucial, that supply follows demand. However, when you consider the other investment issues and opportunities whose ‘stability/return’ ratios could be compared to those achieved in property, you are right to remain circumspect about this possibility.
To invest in the property market in 2021, we will have to be patient and consider other neighbourhoods if we still want to pay the right price for a balanced return.