No bubble to burst
How might COVID-19 compare to the Global Financial Crisis? Will Christie considers the market's preparedness…
“Within the financial press there are a number of people and publications that are drawing parallels between what is happening now with the COVID-19 pandemic and the global financial crisis in 2008 and this has led some within our industry to do the same,” starts Will Christie, head of sales at Y.CO. “I am not an economist so can’t predict how deep-rooted this problem will be compared to 2008. There are, however, some key differences between how prepared the industry was in 2008 and how prepared it is today.”
It is well known that during the pre-2008 bubble, superyachts were being sold for massive premiums, such was the demand for them. Many superyachts were sold for more than their original build cost and a number of other boats actually appreciated in value once they had been delivered,such was the lead time at many of the leading shipyards.
“We were very much in a bull market back then,” explains Christie. “Since 2008, however, the market has changed and become more akin to the automotive industry, which sees new cars depreciate in value as soon as they leave the dealership. Once the 2008 bubble burst it took a long time for the market to recover and comes to terms with its new reality, but buyers and sellers are now understanding fair market value.
“In recent years, the prices that people have been paying have been much more realistic . Owners today always factor in depreciation and accept that when they come to sell the vessel they will, generally speaking, receive less than they paid for it. I am not suggesting that there will not be a market correction of some sort that affects pricing as a result of COVID-19, at least in the short term, but I doubt that it will be nearly as dramatic as when the purchasing bubble burst in 2008.”
Christie further highlights that during the boom period of the mid-2000s the superyacht market, as well as a number of other assets classes, relied heavily on the availability of finance, using the vessels themselves as the collateral for any such arrangement. By stark contrast, the availability of pure yacht finance is extremely hard to come by in today’s market.
“If you are going to finance a superyacht today, the vessel itself will almost never serve purely as the collateral,” continues Christie. “You will almost always require an existing relationship with the bank and they will most likely only lend against an equivalent sum invested under their management. In 2008 when the credit crunch hit, many owners were simply overgeared and in breach of loan covenants, so were forced sellers of yachts. Some yachts were also being repossed and being off-loaded by banks at highly discounted levels. Banks have had to be much more responsible with lending so I don’t see such an issue being widely replicated again, no matter how long this situation plays out.”
Due to the fallout from 2008, owners are, generally speaking, in more secure financial positions where it concerns their superyacht projects. In the mid-2000s it was the availability of finance, rather than owners’ liquidity, that enabled the rapid buying and flipping of superyachts.
“Looking forward, we are going to see short-term pain as potential buyers delay their plans – and this is completely understandable as they are seeking clarity of how the future will look,” explains Christie. “Yes, we have had a drop-off in business for both sales and charter -we are conscious of reality and aren’t burying our head in the sands. That being said, I firmly believe that the appetite for engaging with the superyacht market will return as the situation becomes resolved.
“We have a number of buyers who are at the beginning of their purchasing journey who are waiting until the situation blows over before continuing. On a personal level, with the travel restrictions and lockdowns, people are trying to sort out their own circumstances before concerning themselves with conspicuous consumption. Superyachts, for most, are not the priority at the moment. That being said, we have another customer who is eager to continue with a purchase so that, as and when the travel restrictions are limited, he is able to enjoy the summer to its fullest. He is seeing more than ever that he wants to live life to its fullest with his family and he correctly states that a yacht is about the safest place to self-isolate right now while enjoying life and the great outdoors. He said that he now realises that he needs a floating home that he can take anywhere.”
In these uncertain times the most important message is for people to remain vigilant, safe and healthy. However, with a period of isolation to come, it provides an opportunity to individuals to consider their priorities. It is not beyond the realms of possibility that in the fall-out from the COVID-19 pandemic, that many UHNWIs will be eager to continue living their lives to the fullest after a period where choices to explore and enjoy the world are becoming increasingly few and far between.
“If you have the capital to do it superyachting, in our opinion, remains one of the world’s most fun and adventurous pastimes and, in a roundabout way, it remains one of the safest because of its relative isolation and freedom,” concludes Christie.
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