Jan Večerka
Two in five people would never invest their money — but those who would are most likely to invest in properties. This is the conclusion of a recent survey by Hargreaves Lansdown, and it shows that unless you invested in the stocks of a few companies like Amazon, PayPal, Apple or Nvidia, real estate has proven to be one of the most reliable investment options.
The last months have seen a global outpouring of cash deposits estimated at around $2 trillion and savvy investors are eager to score the best opportunities. However, is the real estate market well equipped to capture a substantial part of this sum, considering the current context of the pandemic?
The truth is, that COVID-19 has stirred up the long-settled dust on real estate investing. This could paint a bright future with promising – yet different – projects for developers, startups and investors.
1. Tech is giving property investment a new façade
When it comes to digitization, real estate certainly hasn’t been one of the frontrunners. However, this could all change now. COVID-19 has brought novel challenges, and technology has stepped up to offer the solutions.
Yet, in a sense, innovation is competing with time. The longer the pandemic drags on, the higher the chance that digitization initiatives will stick around for the long run. After all, it’s one thing to make short-term fixes by substituting a home viewing with a detailed video, and quite another rolling out an entirely new process that uses drone-supported imagery, satellite viewings and virtual tools to promote an entire portfolio. Either way, it’s clear that the pandemic has pushed real estate toward a cultural change centered around a greater reliance on technology.
This is great news for proptech, a sector that seeks to disrupt and improve the way we buy, rent, sell, design, construct, manage and invest in residential and commercial property. Since 2013, annual investment in U.S. proptech companies has grown at a rate five times that of investment in all U.S. businesses. So, being one of the fastest developing business sectors, proptech will maintain a strong momentum throughout COVID-19, especially when prioritizing products and services that save people time and money.
Along the way, it’s turning to the major technologies of the fourth industrial revolution, including the Internet of Things (IoT), artificial intelligence (AI) and machine learning (ML), blockchain, virtual and augmented reality, and much more. So, how specifically are property investment processes being affected by this trend?
House viewing and communication
According to João Richard Costa, the director of sales and marketing in a resort in the popular Portuguese region of Algarve, there was an initial bump in sales at the beginning of Q2, but the situation normalized fast — partially thanks to virtual viewings. “We’ve done some sales for people who haven’t even visited. They were happy to move forward on the basis of virtual tours and videos,” he said.
For some realtors, the pandemic was therefore not all that bad. House-bound investors had more time to interact, be it through emails and calls or by consuming content and attending webinars. In such a context, virtual viewings became well-received, inspiring realtors and different platforms to further improve their capabilities and champion seamless user experience.
When outsourcing the technology, startups turned out to be of great help. In the commercial space, for example, companies like ShareSpace allow anyone to find their ideal office spaces, compare the available listings, schedule a virtual or in-person viewing, and even sign all the documents remotely.
Accessing information in new ways
Without physical viewings, investors are turning to digital information to avoid taking the pot luck. Realtors are now leveraging real-time data to give investors insights into pricing, home-value trends and neighborhood value. At the same time, we’re witnessing the adoption of chatbots and other automated systems that guide investors through the process.
Realtors are also increasingly experimenting with technologies such as drones, 3D visualizations and satellite viewings. Companies like Latitudo 40 turn satellite images into geospatial information and record real-time status updates that provide a superior level of oversight and ultimately increase investor trust.
Property crowdfunding
The uncertainty of the pandemic has encouraged investors to diversify their portfolios and explore safer investment options. With both equity and debt projects, property crowdfunding emerged as a viable strategy, allowing anyone to chip in as little as $100. By incorporating elements of the sharing economy, these platforms present an equivalent to what Robinhood and others have been doing in financial services.
But it’s not just intelligent dashboards and an instant gratification element that have ensured a steady performance for property-backed peer-to-peer platforms throughout the pandemic. By taking away the risks involved with direct property management, such as tax issues and hidden costs, the whole investment experience becomes unprecedentedly convenient.
Interestingly, it’s not just individual investors looking to explore the property crowdfunding space. While banks usually take a step back from real estate during recessions, some have been sealing unlikely partnerships, which is the case of Komerční Banka, a leading Czech bank, that has recently partnered with Upvest, a property crowdfunding startup.
Smart buildings and hotelification
It goes without saying that the pandemic has radically shifted established living trends. Before, convenience would often override comfort, but now we are realizing the importance of the home as a space more than we ever did before.
Investors with their eyes on residential properties are increasingly exploring smart home technologies, not only to streamline maintenance operations, but also to improve resident experience – the competitive battleground of the future. Apart from widespread upgrades in amenities, this means investing in IoT to monitor and improve both living and working conditions, especially when it comes to energy savings.
2. The notion of what makes a good location change
There’s a notorious cliché in the real estate industry — the 3xL rule — that is, location, location, location. And this mantra will survive post-COVID as well. Today, over 55% of the world’s population lives in urban areas, a proportion that is expected to increase to 68% by 2050. While a lot of this change will happen in Asia and Africa, it’s obvious that urban areas are bound to retain their value even when prices are volatile.
Centers of economic activity generally continue to present a safe investment choice. While there have been disruptions — such as tourist apartments in southern Spain seeing temporary halts in yields — this only hints at a slight stumble, as we are already seeing tourism across Europe being reactivated.
However, the notion of what makes a good location is now changing. People are reassessing their priorities: According to Rightmove, there has been a significant rise in searches for homes that are further from town and city centers, with larger gardens and space for a home office. While it’s too early to say whether this is a permanent change, it’s obvious that the pandemic has made many people rethink how they want to work and live.
Real estate experts agree with this. Brennon Nicholas, a realtor in Montenegro, claims that seclusion, security and privacy have become key factors. As people realize they can work remotely and safely from any destination, they gravitate toward much quieter environments that still have a solid infrastructure in place. These realities also encourage investors to explore new locations: “In Colombia, we have seen increased interest due to the mix of many high-end opportunities and distressed foreclosure prices brought by COVID-19,” says Mateo Monsalve, a Medellín-based property investment advisor.
Something similar is happening in Greece, where realtors are experiencing unparalleled interest — both due to picturesque landscapes and the way the country has handled the pandemic. In recent weeks, British demand alone has surged by over 200%, after the government announced plans to relax travel restrictions. According to Katerina Katopis, a director of a real estate project on Kea island, buying a large villa that has home offices and lots of space now matters to investors more than ever.
Interestingly, in the U.S., this phenomenon could irreversibly change the famous concept of Silicon Valley. As companies like Twitter or Shopify go remote, their employees have more freedom to explore alternative living opportunities. Without the need to be in the immediate proximity of an office, many techies are looking at places such as Sonoma County or Napa Valley. After all, a commute of two or three hours is not such a big issue when it’s not a daily journey.
According to Ron Abta, the founder of Polaris Realty, this could raise new opportunities in areas that were traditionally considered less popular due to their distance from Silicon Valley. From an investment standpoint, places outside traditional centers — but still with great amenities nearby — could become more interesting as a result of the coronavirus pandemic.
Such changes to the housing market beg an obvious question: How will offices be impacted? While these spaces are unlikely to disappear, their usage might be more balanced with the work-from-home modality, and therefore they could see a decrease in demand.
Either way, the office property market will have to adapt, but this is something the industry is traditionally good at. For example, as the U.K.’s capital needed more offices back in the 50s and 60s, many of the townhouses in the West End were converted from residential to commercial. Then, the city of London was rebuilt in the 80s, and Canary Wharf constructed in the 90s. Recently, London has urgently needed more accommodation, and commercial buildings such as those converted office blocks were turned back into flats and apartments.
Even if we see office spaces repurposed, it’s still worth mentioning that during the previous crisis, commercial property prices fell more sharply than residential property. In the U.S., residential property prices decreased by almost 20%, while commercial properties saw a drop of over 30%. Based on such past observations, approaching commercial investment during the current crisis shouldn’t be necessarily discouraged, but definitely approached with greater caution.
Alternatively, investors can look to explore mixed spaces. The pandemic hints at a future of living spaces that are more blurred, connecting the best of both the commercial and residential worlds. An example of this is the Ingka Centres mixed-use project in Shanghai — aimed to be completed in 2022 and valued at over $1 billion — that will incorporate a small Ikea store, 300 retail concepts, public space, roof gardens, a Scandinavian-styled street and five office towers.
3. Demand for social and environmental responsibility spikes
If you ask any manager what corporate social responsibility meant a decade ago, they will probably tell you about publishing a nice brochure twice a year. This has changed since, with investors across the board pushing for a lower carbon footprint and a clear commitment to sustainable development goals. Unsurprisingly, such conversations were further spurred by the outbreak of COVID-19.
Property investors, especially in Western Europe and North America, now show a greater appetite for sustainable investment —including smart solutions aimed at reducing CO2. For example, research conducted by Knight Frank Global Research shows that 45% of investors active on the commercial property market pay attention to the degree to which buildings in their investment portfolio affect the environment and whether they fit the idea of sustainable development.
This makes sense even from the financial perspective, as there has been a growing demand among tenants for green buildings. Moreover, considering environmental factors such as climate risk, waste management and energy consumption in the building help prevent its obsolescence and, in consequence, cut operational costs. Ultimately, obtaining the “green” building certificates such as BREEAM is said to help increase a net operating income and improve the overall valuation of such buildings, compared to noncertified ones.
Just a few months ago, one would hardly find an industry showing a greater flair for tradition than property investment — despite its obvious ripeness for disruption. While different concepts, such as advanced technologies, crowdfunding and sustainability had been tiptoeing around for a while, mass adoption was rare. Now, it seems that the sector has finally met the challenge — and is ready to start a new chapter.
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