Real Estate Market Trends in the New Decade
What real estate trends should we be watching in the world’s premier real estate markets? After a 2019 that saw the luxury real estate market asking where all the buyers went, there are some trends in this segment we’ll need to look out for as we enter the new decade. Let’s have a closer look.
Real Estate Prices
“Is 2020 a buyer’s or seller’s market?” That’s a question many are asking, but the answer may depend on what market you’re asking. Many cities where luxury properties were built at a rapid pace when prices were inflated, like New York, Vancouver, or London are experiencing affordability issues as more luxury construction came into the mix. You hear stories about rental crises in these cities, such as the fact that the rent for a one-bedroom dwelling in London is three times higher than a three-bedroom anywhere else in the rest of Britain. Vancouver, in response to foreigners buying up property, introduced a 15 per cent real estate tax on foreign real estate buyers in 2016, that they have since raised to 20 per cent to try to control the price increases in the city.
As real estate prices are falling and interest rates are low, investors are looking to diversify their portfolios as for some real estate does not provide the same attractive returns as they once did. Analysts, such as Bartlett School of Real Estate at University College London chair Yolande Barnes, claim that “[w]e reached the end of an era of capital value growth.” Another property market analyst in Britain, Neal Hudson, claims that property is not as safe of an investment as it was in the past.
Population trends are leading to market segments
As the global population’s dynamics are changing, the future will see a new sector emerging in advanced countries: a new type of dwelling for older people as those countries’ people are ageing. According to The Financial Times, “[t]he new model of retirement assumes older residents will live alongside everyone else, often in cities, and will focus on keeping up relationships with their neighbours.”
The specific residential real estate segments are not limited to old age. As we mentioned before, when discussing real estate prices, affordable housing will emerge as a segment in 2020 and beyond. Another example could be city flats for young professionals that could potentially go without car parks or kitchens, for example.
Emerging markets will fuel a growing demand for assets
With emerging markets continuing to grow in strength, one of the areas that will see increased competition from their presence is in the acquisition of real estate in major cities. Price Waterhouse Coopers (PwC) noted that “[a] recent survey by Preqin showed that 54% of all sovereign wealth funds (SWFs) invest in real estate, with most SWFs from the Middle East and North Africa and Asia.” The same survey acknowledged that 57% of SWFs preferred investments in core real estate, making them even-more cutthroat competitors in significant markets like London and New York.
While some are concerned about outbound capital controls, like the ones China sets on its citizens, a potential risk in the real estate market could come if the White House decides to place investment limits between the United States and China. Since the American real estate industry has greatly benefited from Chinese investment, if these trends toward capital restrictions persist, it could hurt cities like New York, says Savills Chief US Economist Heidi Learner.
Another one of the real estate market trends we’ll see in 2020 is the rise of proptech or property technology. While brick-and-mortar real estate agencies managed to get through the 2010s, Warburg Realty president Clelia Warburg Peters claims that “...proptech will follow a similar pattern to fintech over the next decade, and that it will spread beyond real estate sales to construction, property management and leasing.” Among the startups flourishing is the use of blockchain technology.
How is blockchain being applied in the sector? One is through tokenisation that allows property owners to issue tokens that represent a number of shares in an asset, in this case, the property in question. Investors can purchase these tokens and gain exposure to the appreciation. German startup Brickblock tokenised the first property in continental Europe in Wiesbaden, Germany for €2 million, while in Manhattan. Also, the first significant US real estate development (worth $30 million) was tokenised using Ethereum blockchain technology.
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Senior Associate, Europe Emirates Group