Has real estate become more affordable?
The realty sector is one of the most recognized sectors across the world, there is something that comes with buying your own house or office that gives you a sense of independence and freedom. Buying your own house is often the first stop on almost every individual’s bucket list. Especially considering how rent prices are soaring for relatively average properties.
The realty sector comprises four sub sectors: housing, retail, hospitality, and commercial. The growth of this sector is well complemented in developing countries by the increasing growth in the corporate environment and the demand for office space. If there is an increase in office space, as a result there is also an increase in the demand for urban and semi-urban accommodations.
The looming threat:
The global real estate market is valued at a whopping $326 trillion, it has been of the most consistent sectors, one that you could say will 99.99% of the time deliver guaranteed returns.
However, the last two years have shaken the real estate sector and tested it to a large extent as the threats of another recession loomed due to an increase in vacancies in rental complexes, commercial hubs that were once hustling and bustling with full of life now practically seeming like abandoned villages and default in payments by occupants.
This is not all, the global direct investment in commercial real estate fell by 29% in the first 6 months of 2020 alone. This drop was a result of lockdowns in all developing and developed nations and travel restrictions.
Investment in real estate in the United States alone witnessed a 37% decline, the Asia Pacific region witnessed a 32% decline in investment. This in addition to the massive surge in unemployment globally has resulted in individuals rethinking their financial positions. Investing in real estate is the last thing on their minds.
This is not all, since the world was forced to adapt to this new normal, the emergence of work from home culture has delivered a bigger blow to major developers who often view building business parks and commercial spaces as a safe investment. Firms globally are realizing they do not have to spend a lot of money into renting and leasing properties for employees, in fact, there have been a lot of amendments made to existing leases, with firms reducing their workspace.
The residential sector witnessed a sharp dip in the sector after the first two waves of the pandemic hit. However, the sector was beginning to pick up and recover for a brief period of 5 months until the new omicron variant was discovered. On the positive side of things, once the vaccination rates across major metropolitan cities began to pick up, the real estate markets began to stabilize.
Though the recovery and growth rate are nowhere near to what it was before, there is a ray of hope and in due time, it appears to be heading back to securing a double-digit year-over-year growth rate.
However, there are other issues as well. The investment in massive commercial projects across the world has reduced. Most of them being developing projects, since investors have pulled their money out, the projects are stuck under development, the contractors do not have funds to complete them and investors all around are hesitant to bet on the future of such projects. This in addition to the already high inventory of empty spaces has put the debt of the real estate industry at an all-time high forcing government and regulatory bodies to step in.
A glimmer of hope amidst the darkness:
The major benefactors of this crisis were individuals who were already gearing up to invest in the real estate sector, this paired with the eagerness of banks to provide home loans at relatively attractive rates has encouraged prospective homeowners.
As a matter of fact, countries such as India witnessed the lowest real estate prices in over a decade, due to the reduction in demand. However, not for long as prices will pick up.
Global real estate is set to grow at a rate of 34.5% over the next two years. Realty developers are now turning from having commercial and housing properties as their primary focus to developing more warehouses, data centers and buildings that serve as more conducive to the logistics needs of companies. Diversification from retail sector and hospitality sectors have become a top priority as due to global travel restrictions paired with the reluctance of individuals to travel, premier hotels and resorts are witnessing barely any bookings.
It will take some time for the industry to reach its former glory, and there are a lot of things to figure out, investments in luxury properties and hospitality projects are likely to be put on hold for now. There is also a need for more government assistance to ensure the industry gets back on track.