Panel discussion: Real Estate post-COVID19 trends
Description
COVID-19 is a humanitarian challenge that will have lasting effects on how people live, work, and play. By acting today, Real Estate leaders can best serve end users and ensure their own viability. Physical distancing has directly changed the way people inhabit and interact with physical space, and the knock-on effects of the virus outbreak have made rising new needs. Beyond the immediate challenge, the longer this crisis persists, the more likely we are to see transformative and lasting changes in behaviour. That is why in this panel we will analyse the market from a customer’s prospective, trying to identify what are going to be the new needs arose during the pandemic.
Objetives
- Help stakeholders make informed decisions based on market analysis.
- Provide significant insights and highlight several implications for agencies and property seeker.
- Implicate those trends across functions in your business and actions you can take.
- Evolving trends in consumer and customer behaviours as we progress through recovery.
Speakers
- Alberto Valls – Deloitte Financial Advisory- Responsable Real Estate EMEA || ULI Madrid Chair
- Ian Casolani – Chairman of the RE Business Section at The Malta Chamber
- Benji Tabone Grech – Chief Executive Officer at Engel & Völkers Malta
- Andrés Sánchez Lozano – Deputy director ERA
Moderator: Keane Cutajar
Panel Insight
Quick overview of real estate market
Real estate is classified as an alternative asset, but it is becoming increasingly less so. It is providing additional returns to other traditional investment classes, such as fixed income and equities. EMEA increased in terms of RE investment volume, but is still below 2019 levels (-4%).
There has been a shift towards a core investing strategy, with a focus on yielding and inflation-hedging.
After COVID-19, not every sector is recovering at the same pace. Basic resources, technology and the industry sectors have recovered quickly. Real estate has almost reached pre-covid levels, but tourism and leisure are far behind. Recovery has also been very selective in terms of both geography (with the UK experiencing a faster recovery than other European countries) and in terms of asset classes.
The situation is wholly different to the one experienced during the 2008 financial crisis. Property companies are significantly less leveraged than they used to be. LTV ratios show higher resilience to interest rates increasing. Real estate continues to be attractive as an asset class because there is still a significant premium between commercial real estate yields and free risk rates.
Long-term interest rates are rising. Some asset types are hedged against inflation, as it can be transferred to tenants. The savvy investor will incorporate ESG principles (Environmental, Social, Governance) when choosing their investments. In the face of inflation, OPEX strategy and leakage optimization become very important.
Market impacts in Malta
The impact of covid was less than anticipated. Even though rents were hit, the property market weathered the crisis remarkably well and showed signs of resilience. Demand remained strong; tax incentives bumped up promises of sale. Usually, whenever there is distress in the market, investors are ready to pounce on opportunities. However, this distress did not materialise.
It is possible that the effects of the pandemic are just beginning to be felt; the lag between the initial purchase agreement of the property and the finalisation of the deal can skew perceptions. Covid has shown a drive towards better quality in the built environment.
The type of clients that Malta has traditionally attracted chose the country for advantageous tax schemes. Because of its lifestyle, it has also been a good proposition for people considering retirement, although infrastructure is not always up to their expectations. Strengthening the value proposition of Malta would require infrastructure improvements across the board, an aspect on which the country is not proactive enough. In this regard, the sector feels that there is a lack of an overarching, long-term strategy.
Due to the pandemic, the demand for open spaces has increased. Prices for real estate that included these kinds of spaces have gone up. The decrease in prices of some other properties could be due to them being overpriced in the first place. Prices remain stable, inflation makes real estate attractive. No big changes are expected in the foreseeable future.
Remote working, second homes
Another effect of covid is that it has broken the mental barrier of working remotely. People are asking if their presence at the office is dictated by real necessity or by the employer’s misplaced assumptions about lost productivity, need for direct monitoring.
It is estimated that the percentage of people working remotely could reach up to 20%. As a consequence, the need for office spaces will go down. They will turn into meeting rooms for corporate appointments and specific moments of business operations, such as closing sales.
When it comes to residential buildings, the prices for urban centres could go down. Areas that had traditionally maintained an upward trend in prices (such as San Francisco) have recently experienced a drop. City centres could become places inhabited predominantly by young people and tourists. The average lengths of stay in hostels/hotels in the city centre are shifting from 3-5 days per guest to weeks or even months. Some of the guests are digital nomads working remotely.
The concept of second homes is changing. They no longer have to be located in main cities, not even in the same country. Living outside big cities (50 km away) is perceived as a way to save time and money and improve health. Main homes are starting to be located on the coast, countryside. These new areas will need hospitals, schools, energy infrastructure, which will take time and a great volume of investments.
Home-ownership – concerns of being priced out
It is suggested that buying a property is no longer desirable for many young people. They are part of a mobile workforce accustomed to switching workspaces between many different European countries. They do not want to be ‘tied down’ by the financial obligations that a loan entails.
The average person per dwelling is reducing, which drives prices up. The mindset of the Maltese is still focused on ownership. Many of them feel like they are priced out of the market. They might need to reconsider other areas away from the city centres, as the effort rates in and around those areas are increasing significantly. Governments are highly leveraged, and are not in position to deploy projects which require massive capital expenditures for public-private partnerships (such as those seen in public housing initiatives). In markets such as the UK the ‘Help to Buy’ scheme has narrowed the difference between the cost of the house and the equity that needs to be put by first-time owners.
Information and technology
Property technologies (or ‘proptech’) are starting to provide sufficient information to understand housing prices. This is particularly important for Malta, as the real estate sector lacks factual and accurate information to guide decisions, and has to rely on gut feeling to do so. In addition to allowing gathering and sharing important metrics which were previously not widely available, proptech allows to increase the turnover rate by making supply and demand meet more easily. For example, second hand units are bought, refurbished and sold in a period of 100 days.
Updates and further information about the summit’s developments can be followed on the official blog and on its social media channels.
