Travel restrictions and the distortion of capital flows
Travel restrictions have weakened cross-border transactions, which in turn is weighing on competition from overseas investors. With a lack of competition comes opportunity for both domestic players and more confident international investors that are happy to buy assets without seeing them in person.
3 minutes to read
Takeaways
- More than half of respondents to our Global Buyer Survey have either travelled abroad already or will do so within the next 3 months, though airlines predict it will take three years for air traffic to return to 2019 levels
- Both commercial and residential markets that are driven by domestic demand are likely to remain more resilient and potentially see higher than expected transaction levels as investors look inwards
- Markets that allow for overseas visitors have an advantage as prospective investors can visit property
Prior to the outbreak of Covid-19, US passport holders could travel to 185 countries without a visa. They are now barred entry to fewer than 30 and testing or quarantine rules apply in some. This is a stark reminder of the level of restrictions still in place globally despite many having been lifted.
The impact on markets depends on dynamics. For example, the UAE’s property markets, particularly in Dubai, are reliant on tourism and travel including major sectors such as hotels, retail and residential. Investors will need to understand and assess market fundamentals when looking for opportunities.
Markets that are driven by domestic demand, commercially and residentially, may see higher levels as investments look inwards. Australia’s prime residential market is largely driven by domestic demand and is likely to see continued interest as expats look to move back home.
For those willing to invest across borders the markets which they know and understand, with a high degree of transparency and liquidity, are more likely to benefit. It is worth noting that whilst cross-border investment has fallen, some investors remain active. Many of the largest deals currently underway in the UK are to overseas buyers, and in the first half of the year Singaporean investment into Australia increased 71% year-on-year. Markets that have opened up to travel and do not impose quarantines may too have an advantage.
Industry groups estimate that it will take three years for air traffic to return to 2019 levels. However, optimism is returning, in our Global Buyer Survey over half of respondents have either travelled abroad already or will do so within the next three months – potentially just closer to home. In residential sectors the inability for overseas buyers to view properties is a hurdle yet many have undertaken virtual tours and buying off-plan has become favourable, particularly in markets that the buyer is already familiar with. There is likely to be higher demand for second homes reachable by road, car or train.
Paddy Dring, Global Head of Prime Sales for Knight Frank notes that “travel restrictions have certainly slowed down the flow of capital but they have not stopped the appetite for property. Buyers are now becoming more informed and utilising technology more than ever. In some cases where they know the neighbourhood and street there has been purchases unseen. For sellers, the importance of virtual viewings and good floorplans is now coming to the fore.
The key thing is we are seeing more regionalised markets. In Provence, for example, French nationals made up 60% of enquiries in the first half of the year up from 50% last year, British, German, Dutch and Swiss buyers are also joining them. Many are opting for locations reachable by car or by rail rather than air, although for the high-net-worth individuals we have seen an increase in private aviation. Given the strength of this regional demand as well as restricted supply, many markets have seen limited movement in price.”
Main photo by Avel Chuklanov on Unsplash