Property Developers: Turn Right and Follow the Money
Markets are difficult: but don’t be found asleep at the wheel
The real estate sector is currently facing headwinds. Some asset classes, such as offices, are impacted much more than others, but the impact is widespread. Despite this, real estate has not and will not lose its relevance in the foreseeable future. What is likely, however, is that the form or utilisation of the ‘space’ will change over time. Advancements in technology do not diminish the need for individuals to sleep, meet and interact. The intent is to optimize and reprioritize space in order to make life easier for us.
The importance of real estate as an asset class does not require any description. Exposure to real estate is not just limited to property developers, but extends broadly to include financiers - such as banks, asset managers and private credit funds – as well as almost every investor - whether institutional or retail, directly or indirectly. In fact, for retail investors, one of the largest indicators for consumer confidence emanates from the increase in the value of their home equity.
Meanwhile, the transformation of this sector is undeniable. From the disruption of retail malls by online shopping to the zoomification of office space in the post-Covid era, much of the transformation is driven by technology. Although utilization changes, from malls to Amazon warehouse and from office to co-living, real estate remains and, some may argue, has become an even more interesting investment today than it has been for a long time. Accordingly, participants in the sector - developers as well as investors - must all carefully and consciously re-evaluate their investment strategy and avoid the trap of simply continuing down the same path they followed previously (simply because it may have worked), or risk walking obliviously into negative equity due to devaluation of the assets they are invested in.
This article provides a perspective on how participants in the sector, such as property developers, their service providers and investors, might navigate these challenging market conditions to evaluate their next course of action.
Underlying drivers of these headwinds
In order to understand how to tackle these challenges, one must first understand the underlying reasons. There are three primary causes: