Property is one of the brick-and-mortar industries that powers domestic economies. A vibrant real estate sector tends to suggest that the economy is doing well, and that people are earning and spending strongly. While there is a great variety of property, the vast majority is either residential or commercial.
The fundamentals of the health of the real estate sector lie in the behavioral shifts and the interaction between supply and demand. During the course of 2020, demand continued to rise while supply had stagnated. It saw property prices rising in major cities the world over.
Today, an open plan office is something of a liability since it doesn’t allow for social distancing; something developers and business owners alike had no reason to consider prior to March 2020. The virus doesn’t look like it will be conquered any time soon, so it is something that has to become a part of long-term planning; it’s not just a case of dealing with temporary pain.
In September of this year, the British mortgage provider, Nationwide, noted that house prices were 13 per cent above pre-pandemic levels. While the situation has not been ideal, real estate brokers and agents haven’t suffered.
The industry pre-COVID-19
Franchised real estate brands have been in the same boat as non-franchised businesses. They deal with the same customers, have the same choice of stock, are vulnerable to the same market forces, though to different degrees.
Real estate has typically been a stable and trustworthy investment the world over. Buying habits inform businesses, and the buying habits in property have shown developers that luxury housing is the best-selling and most investable asset class. Property is the universal investment and is the most valuable store of wealth in the world; worth more than all global equities and debt securities combined.
“Residential is, by far the largest sector of real estate, it accounts for 79 per cent of all global real estate value, which isn’t surprising when you consider that everyone needs a place to live,” said Paul Tostevin, director of world research at Savills.
The Lincoln Institute of Land Policy conducted a survey in 2019, in which 200 cities around the world were quizzed on the affordability of housing. The responses showed that 90 per cent of cities were considered unaffordable. Residential property prices were continually being pushed higher and higher as affordable housing stock was shrinking and more people moved into cities for work.
“Housing has been financialized and turned into an investment vehicle, which has caused an oversupply of luxury housing and a lack of affordable housing,” said Richard Florida, founder of Creative Class Group, while speaking to World Finance.
The global property market was in a position of strength prior to COVID-19 paralyzing the world. A lack of affordable housing kept prices of residential property high. Investors were continually adding to their portfolios as developers raised more luxury-housing towers in metropolitan cities. Office spaces were pivoting towards more open-plan spaces with a slew of amenities for employees to enjoy.
Life after the brunt of COVID-19
The entire industry took a hit in terms of office and commercial space. Businesses were being told to cease operations or work entirely from home for a long period of time. Consequently, many businesses didn’t renew leases or go ahead with buying office space. In-person restrictions severely curtailed businesses that relied on in-person interactions. But it didn’t last long, real estate came back strongly.
“Residential has had an extremely strong period [during March to December 2020]. Of course, during the very initial hard lockdowns, activity was curtailed, but the bounce-back has more than made up for that,” said Tostevin.
“It’s due to the emphasis that people are putting on their living environments that has led to very strong demand for residential property in many markets around the world. We’re seeing that in our monitoring of different global markets as well.”
The global real estate industry saw some consistent themes across differing markets, mainly driven by new behaviors. As the pandemic struck, many jobs could still be done from home. With the money saved from the commute and the importance of the home magnified, many who could afford to, took a step up the property ladder. This led to an increase in house prices of over five per cent in 23 of out of the 60 countries in the IMF’s Global House Price Index of 2020; countries like Luxembourg saw a rise of 17 per cent.
“As soon as things opened up after the initial lockdowns, we saw a big surge in residential demand. That was able to happen, in part because we saw extensive economic support,” said Tostevin.
“There were very low interest rates in most developed economies, so mortgages remained relatively cheap. In spite of the economic downturn, governments continued to support jobs. Given the debt of economic support and support to the jobs market, we didn’t see a significant fall out as we might have seen in previous recessions.
“I think that’s what’s been particularly interesting about this recession is the housing market, and how the economy moved in different directions. Whereas that wasn’t necessarily the case in previous downturns.”
ERA Real Estate’s report on the sector post-COVID has shown:
- Low inventory and increasing prices are prevalent around the world
- Moving to the suburbs made sense in many countries – but not all
- The second home market was invigorated by the pandemic
- The desire to own a home is stronger than ever.
These trends have created a growth market in most countries around the world. Ambitious infrastructure and development plans are supercharging growth in real estate in some regions around the world.
Europe is one of the fastest-growing regions, but also Turkey in particular with its massive new home development plan, new road building, infrastructure, facilities, hub airport and central location between Asia, America, the Middle East and India,” said Sherry Chris, president and CEO of Realogy Expansion Brands.
“In the Asia Pacific region, Southeast Asia is particularly poised for growth. As the infrastructure develops further and governments become more transparent, the real estate markets there will become more stabilized, and values will increase significantly. Additionally, the Caribbean Islands, Canada and Mexico are also all experiencing growth.”
The changes in this sector were driven by relatively simple forces, people’s behavioral shift and a lack of housing supply. The shift and lack of supply were driven by the lockdowns, developers were unable to build and people placed more value in their homes.
What can franchisors provide that ordinary estate agents can’t?
The appeal of franchising is being able to leverage a long-lasting, trusted and scrupulous brand. Buying or renting property is costly, and consumers want to deal with reputable brands that demonstrate high levels of competency. It’s also important to note that franchisors do not select a region and start from scratch; they normally choose accomplished and trusted local partners to take on their branding and processes, which immediately places the brand as a local leader.
“First, we determine if there is a buoyant real estate market and, if so, would it add value to our existing network by adding transactions, increasing market share and increasing our global referral network,” said Chris.
“We also look at how mature the market is and research to better understand how our brand can assist local companies in gaining market share and growing. Then we carefully select possible candidates to work with.”
Global real estate franchises are mammoth organizations, and consequently cast a wide net. Global brands have huge networks that they can call upon to boost a certain region, or share best practices. Employees will also have access to larger training schemes and be able to better assist clients.
“Franchises can provide a level of scope and scale that is difficult to achieve as a sole operator. From international media partners, worldwide listings distribution, access to an extensive referral network and comprehensive professional development and learning platforms, franchises offer a multitude of paths to growth for real estate professionals,” said Chris.
“As part of a globally recognized brand, agents have enhanced credibility with clients that comes from decades of earned brand equity.”
International brands tend to be at the forefront of technological advancements too. A property is the largest purchase most people will ever make, yet technological innovations have been far and few between for customers.
“Modern technology abounds to make the buyer’s or seller’s journey easy. We also use artificial intelligence (AI) and bots to track potential leads and attributes of their desirable homes to best match a transaction,” said Chris.
“With COVID-19, our agents and managers are introducing more creative ways to connect with their customers through Zoom and Microsoft Teams and working to virtually showcase listings even before an actual viewing. All approaches need to be seamless for everyone, regardless of using computers, laptops, mobile phones, or iPads.”
A disaster-proof industry?
The advent of COVID-19 was a seminal moment in history and has led to a number of shifts in attitude about how people live and work.
The increased value placed on the home was seen in the IMF’s Global House Price Index for 2020 as more and more people wanted to live in the suburbs and move to a bigger and better home despite this being a period where many lost their jobs or were placed on a furlough scheme.
Global real estate franchisors were extremely well placed to advantage of their knowledge gathered around the world and their positions as trusted, reputed estate agencies. Until there are significant investments into affordable housing in developed cities around the world, house prices are likely to continue rising and global brands will make hay while the Sun shines.