The risk of direct investment in real estate in times of crisis
Are you also dreaming of owning your own home? You are not alone in this: According to a survey by SPIEGEL (August 2018), 84% of Germans want to live in their own property. In fact, around 45% are already doing this. But anyone who uses all their capital for their dream is taking a high risk. About the dangers of buying real estate.
Real estate as a useful retirement plan
Real estate is also jokingly referred to as “concrete gold,” which already shows why this type of investment is so popular — it promises security above all. If you own a home, you don't have to worry about rising rents. In times of crisis, owning a home provides security and can often survive difficult situations such as hyperinflations or stock market crises unscathed.
Security and stability are the basis for the “bourgeois” image of real estate. And in fact, there is hardly a better type of retirement provision: Depending on the type of investment, there can be more lucrative investments. However, there is no one that forces investors to save as much as with a credit-financed home. This ensures that the supply gap among homeowners in old age is significantly smaller.
For many, the idea of investing their hard-earned money in their own home and profiting from their own money themselves — rather than helping the landlord pay off his loans through rent payments is appealing. Your own house is also a status symbol like hardly any other investment and, despite being tied to location, also synonymous with freedom. Because regardless of whether it's tiles in the bathroom, the converted roof truss or the carport in front of the house: Everything belongs to the homeowner and he can change everything as he wishes.
Property owners have also been very pleased with the growing real estate prices in recent years: The value of their own home rose and thus their assets grew without additional effort.
Home ownership: Anything but risk-free
But investing in real estate is not as easy as it seems at first glance. It is therefore difficult for laymen to see whether a property is actually worth their money. After all, this requires a great deal of know-how: From the location and further urban planning to the expected performance and a realistic assessment of the state of affairs, there are many influences that can have an impact on the value.
Interested parties must also have staying power: While securities, for example, can be bought and sold within minutes, the journey to their own home or even an apartment building is fraught with many bureaucratic hurdles. The purchase of real estate thus becomes a very lengthy process and quite cost-intensive due to taxes and duties.
Another problem: Many investors simply do not have enough capital to invest in other investments in addition to real estate. The result is what investment advisors understand by “cluster risk”: The investment risk is not diversified, but is based almost exclusively on real estate. If it loses value, the investor loses assets. The lack of liquidity is also the undoing of many investors, because with the knowledge that the home is worth 800,000 euros alone, the owner cannot buy anything if the account is empty.
Increased default risk due to corona crisis
Anyone who has financed a property through loans often has to repay it over decades. Stable income to repay loans is therefore essential. However, the fact that external financing through loans always involves a risk is also reflected not least in the Corona crisis. If income breaks away, many borrowers are no longer able to pay the installments. Rents may be suspended and, in addition to short-term work allowance, there may even be a risk of redundancies for operational reasons. The original calculation therefore no longer works out for many borrowers.
In the short term, bottlenecks can be easily bridged: Many banks are very accommodating, especially during the corona crisis. Suspending repayments temporarily is often no problem anyway, but interest must still be paid. As a result, the loan and therefore also the house become more expensive. And in a few months, creditors will have to meet their obligations again.
The situation is worsening as the corona crisis has “frozen” the real estate market: There are significantly fewer transactions taking place. Visits are cancelled and the willingness to invest is currently very low. It is therefore almost impossible to sell the property again now. At what price it will be possible later is written in the stars.
Can blockchain help?
It would be easier for property owners right now if blockchain technology was already more integrated into the real estate industry. There is enormous potential here to significantly speed up processes and, in particular, to reduce bureaucratic costs. With the help of secure, unique blockchain transactions and smart contracts, sales processes could be shortened from several months to just a few days. And promissory notes and loans can also be issued easily and securely via blockchains.
