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IS AN ECONOMIC DOWNTURN A GOOD TIME TO BUY A YACHT?

Updated: Feb 17, 2021


If you have been in the market for a yacht - it has never been a better time to buy a yacht from overseas. If you have the money opportunities are abound.


A recession is “a significant decline in economic activity” that is widespread and lasts many months, sometimes years. They are normal and inevitable, but they understandably make people weary of buying big-ticket items like yachts, cars or even homes. Unemployment increases, jobs are harder to get, and lending becomes tighter.


All this means yacht buyers need to be confident they can weather any financial storms headed their way.


With the coronavirus pandemic stopping economies and tens of millions losing their jobs globally - it's certain that many nations will be falling into a recession or worse. But some countries may dodge the bullet.


Despite the pandemic causing unprecedented financial disruptions the slowdown of new cases has made investors more optimistic and this is reflecting in stock markets. It has many analysts and economists scratching their heads.


As it has happened many times before economies and stock markets eventually recover from these dramatic shocks. It's about confidence by the public.


IN POST-CORONAVIRUS WORLD


In the post-coronavirus world once widespread quarantine orders are lifted things will start to revert back to normal - not everything. Like the stock market, yacht prices will rebound back to fair value, or may even go higher as more people look to work remotely on boats.


Economic downturns and falling yacht prices aren't anything new.


Yacht prices took a nosedive during the 1987, 2000, and 2008 crisis and, in hindsight, it was a really good time to buy a yacht from overseas and bring it back to Australia. Those that did got their dream yachts at heavily discounted prices.

What are the pros and cons of buying a yacht from overseas? If you do it right it can be a very rewarding process - financially and from a lifestyle.


YOU SHOULD KNOW ALL THE PROS AND CONS BEFORE YOU DIVE IN.


Before you buy a yacht; you need to be honest about your finances.


Understanding how solid your personal finances are is just as important as finding that "once in a lifetime" yacht deal in a post-pandemic economy.


The key question isn't really how low can yacht prices fall during the crisis but how big of a yacht can you afford to buy before prices start going back up. The current dip in markets may provide the doorway to owning that yacht you would not have normally purchased.


Riding out the downturn is more important than finding that yacht for a price thats "too good to refuse".


Make an honest assessment of your own financial circumstances.


Job instability can turn a bargain yacht purchase into a financial hardship by pushing you over the edge. Also if you’re a business owner, gauge how likely it is that your business will continue to thrive in the post-coronavirus world, or will you need the cash tied up in the yacht to float the business?


Don't buy a yacht with the expectations that you will sell it for more in the short-term. This is a risky trade to undertake because yachts are illiquid asset classes.


You should by the yacht because you want the lifestyle it brings and you love sailing.


Advantages of Buying During a Dip


There are good reasons to buy a yacht during a dip. For example, there’s less competition from other buyers and yachts take longer to sell, meaning that sellers are more willing to make concessions and negotiate. Some are in a panic.


Also buyers during a dip may be able to ask for things they couldn’t ask for if they were buying a yacht during better economic times. Like free delivery - that is delivery paid for by the owner.


YACHT PRICES ARE LOWER


In Australia it has always been hard to sell a yacht. The average time could be a year sometimes longer.


During an economic dip, like a recession, the demand for yachts falls dramatically off a cliff, and yacht prices fall right along with it.


Once an economic dip hits it becomes harder to sell, if not impossible to sell a yacht.


With the current economic volatility yacht prices have dramatically fallen since the coronavirus pandemic became the only thing in the news. So, if you’re searching for a boat, you’re likely to find:

  • Yacht owners who are willing to drop the asking price by a lot

  • Yacht owners forced into a 'fire sale' to get out from under their debt

  • Finance companies selling repossessed yachts

Each of these scenarios results in prices well below what yachts would demand during a healthy economy.




OPPORTUNITIES ABOUND - THE WORLD IS YOUR MARKET


The good thing about yachts is that they can be easily relocated to Australia from anyplace easily. The world really is your marketplace when you are buying something special.


Yachts are moved often from country to country searching for the vibrant economy.


Relocation can easily be undertaken by transport on a cargo ship or by having a professional relocation crew do this via an ocean passage like we do at sailor.com.au.


If you're patient and can wait a little bit more for the yacht to arrive, using a trustworthy professional crew is the cheapest and best way to move the yacht, as much as 50% can be saved when compared to cargo shipping. For example shipping a yacht using a cargo ship from Auckland to Sydney starts at $50,000.


The good thing about sailing a vessel on a long relocation passage is that it usually results in less damage to the vessel compared to using a cargo ship. Often yachts improve during the passage due to the maintenance undertaken as many of the issues are uncovered.


Using a cargo vessel requires disassembling the rig, sometimes the keel, finding the right cradle and hoisting the yacht. This process is reversed at the destination. It's common for damage to occur during cargo ship transport. Which isn't a could way to start the experience on when you unwrap the yacht.


FINANCE RATES ARE LOWER


Along with falling yacht prices, economic downturns tend to bring down finance rates which makes it cheaper to finance.


Securing cheap finance can be more difficult when financial markets become illiquid like in 2008.


If you have the cash then you are in the box seat. You have the money and don't need finance.


DRAWBACKS TO BUYING A YACHT IN A DIP


Not every yacht you spot for sale will be a good yacht.


Some of the heavily-discounted yachts will be those that require significant repairs, but you should be able to tell the difference between a major refit or one that just requires a few minor fixes.


Stay out of the money pit. Try to avoid the yachts that need major work as they are cheap for a good reason those in the know will not touch them - they are more trouble than what they are worth. They have hidden problems and usually end up costing you more - as you discover them along your rebuild.


Good advice is to buy a yacht that is ready to sail with very little requirements to spend on improvements or repairs. Ideally the rig is new, engine hours low and the running gear in great condition. You want something that you can just walk on and sail. And these are around.


OPPORTUNITY COST


Sometimes the reason someone is selling you a great yacht is because they may want the money to invest in something that when it finally pay-outs will buy them a much bigger yacht.


Be aware that your money may return something greater if used in another way during a economic dip. But if you have enough money or not enough time then opportunity cost wont be a factor.


REMEMBER THE TAXES WHEN IMPORTING


Don't forget factoring Australian import taxes.


Importing a vessel into Australia requires that duty and GST be paid on top of the purchase price and delivery. This can add 15% on top of what the value of the yacht that you are purchasing. For tax purposes the cost of the vessel normally also includes the delivery cost as well.


Beware of local taxes where you are buying the yacht. Some yachts may have taxes owing on them. Some people sail the vessel out to international waters to sign contracts to avoid local taxes in the country where the purchase is taking place.


DON'T NEGLECT THE YACHT SURVEY


In the haste of pushing your yacht purchase to settle, it’s important to make sure you undertake a survey by your independent surveyor. These assessments are important because they verify that the yacht has no hidden issues.


Avoid using a surveyor that the seller puts forward, or an old survey report.


BE CAUTIOUS & BUSINESS WISE


Surveys may not find all issues that are hidden. Make it a condition of sale that you will withhold an amount from final payment until a rigger or engine mechanic service the yacht.


These trades will find those issues in places that most surveys won't.


THE BOTTOM LINE


Buying a yacht in an economic dip is easier now more than ever before with internet based businesses and it's a Buyers Market in a big way. It’s important that you remember a few key principles during your yacht search and buying process.


BE PATIENT


If you want to get the best yacht for as little money as possible, prepare yourself for a lengthy research and buying process. The good valuable yachts will usually be in far away places, these gems are stuck in markets where there are just no buyers.


CAST SEARCH NET FAR AND WIDE


The most valuable yachts tend to be in economies that are worse than Australia. These tend to be far away. The further away from Australia usually the more untapped value.


Look for these opportunities. Don't be afraid of buying in places like the Seychelles, or the Caribbean. The process is the same only the location changes. And relocating a yacht from Seychelles may be cheaper than you think. Also remote places have wafer thin markets, being a serious buyer gets you the best deals in these markets.


BE SMART


Know what you are looking for from the start is a big help.


Have an open mind when you start looking and quickly narrow your search criteria once you know what you really want. Don't fall in love with a vessel before you really know its the type you want.

You may end up buying a catamaran when you were looking for a racer-cruiser.


Shortlist the yacht types you are seeking and know how to spot value in your shortlist. Its not simple as the calculus is complex as no two yachts are the same.


No point risking a deal of a lifetime because you didn't know how to tell a good the deal when its in front of you. And remember you are not the only buyer hunting for bargains. Leave a beauty hanging around for too long she may end up in someone else hands.


If you have the money on hand to buy a yacht, there’s a very strong chance you’ll get a better deal than you would before to the economic dip. Don’t jump at the first offer; shop around and negotiate hard and be very smart.


Don't worry about walking away if the value doesn't stack up.


Remember the old expression that there are two beautiful times in your life as an yacht owner - when you first buy the yacht and when you finally sell it.


BE KIND


Economic dips force yacht owners to sell when they aren’t ready, which can cause resentment, frustration and sadness. Realise that what may be an ideal time for you may not be an ideal time for the yacht owner. So be kind, have some empathy and be respectful.


But remember not to lose your opportunity by over-paying.


PRICE THE YACHT RELOCATION ONCE YOU FIND SOMETHING YOU LIKE


Make sure that you understand the cost of relocating your yacht from the places you are looking. The world is your market but you need to understand the costs associated with relocating the bargain yacht.


For example getting to the Seychelles is more complicated than Rome or San Diego.


Professional yacht relocators usually operate 24 hour shift operations and can deliver a yacht faster than people cruising. They also understand safety and the best routes.


The best time to do the research on relocation costs is when you find a viable yacht that you are thinking about buying.


Professional yacht delivery businesses are receptive to the fickleness of yacht buying and can guide you through the process. The good ones will be happy to revise prices.


PRICE WITH A SAFTEY MARGIN


When pricing a yacht be sure to price in a safety margin for yourself. In a dip that we are having you should be able to get that with some good negotiations.


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