Is now the right time to invest in property?

Michael Lahyani, CEO and founder of Property Finder, discusses recovery, where to invest, cities rising in investable real estate, prime properties and the challenges we can expect to see in the near future

The pandemic has caused an immense impact on how we go about our lives, and how businesses react and adapt. As every industry is working towards and analysing their recovery phase, we take a closer look at the different real estate sectors and how they’re reviving after the pandemic.

As confidence returns to real estate, the industry faces a number of fundamental shifts that will shape its future. We will continue to witness changes in the real estate landscape over the coming years and we are observing emerging trends which, we believe, will have profound implications for real estate investment and development.

The good news is that, from our research and insights, we can tell that residential real estate is coming back strongly. The confidence in this asset class is seeing a gradual return because investors are realising that people are spending more time at home, people want to be more comfortable at home, they’re probably going to be working from home and most of them are looking for larger spaces to move into.

Given the current situation, it is unlikely that this will change in the near future. In July when Covid-19 concerns were at their highest peak, we saw the highest number of sales transactions of ready villas and townhouses in a single month ever recorded in the history of the UAE (since the real estate market opened up for property ownership by non-GCC nationals).

On a larger scale, the global investable real estate universe has grown.

The World Economic Forum revealed that from 2012 to today, the percentage of investable real estate has increased by 55 percent. It means that if an individual is looking to deploy money in this asset class, they can invest 55 percent more globally in real estate residential than they could in 2012.

Population, along with GDP is growing rapidly across emerging markets. Fast-growing cities are developing to cope with this increase. Cities present opportunities ranging from low risk/ low yield in advanced economy core real estate, to high risk/high reward in emerging economies.

Migration has a huge part to play, and it is no longer the rural to urban migration that we used to see in the industrial revolution, but actually from tier 3 cities to tier 2 cities. This migration rapidly taking place in markets like China, India and even here, in the UAE. Earlier, only tier 1 cities would be considered as ideal “investible markets” – I’m talking the Londons, New Yorks and LAs of the world, but today, there are amazing opportunities arising in tier 2 cities because of migration and growth across these.

What is changing now is that developers can no longer meet the demand with small projects. We have to go huge at this stage – epic, mega projects launching everywhere. We have seen Emaar going to places like Egypt and building an entire city. This can no longer be considered a ‘residential project’, but rather a whole new city that is being built.

Last year, in Dubai, a real estate committee was formed to regulate developers and developments. The purpose was to implement proper urban planning and to control what type of projects were being developed. This is a positive step forward for the city.

One of the key factors we are also witnessing is that working with governments in the future will be absolutely essential for success. Each of these mega projects launching requires support of local financial institutions for funding, mortgages and to pull money from the overseas.

Developers need manpower, they require visas for their teams, and they also need the infrastructure to complete their cities – road access and public transportation is key to enable them to connect with the areas surrounding them.

Another changing factor that we have noticed is that the competition for prime real estate is intensifying. Indeed, with the growing population, or the growing asset class that can now invest in real estate, it is becoming more and more competitive to own prime real estate.

When there is more demand for prime real estate, the prices of course go up, but the yield doesn’t follow. Typically, yields tend to go down, and this is why investors are looking for other sources of yields, and they’re venturing into tier 2 cities to find this.Moving on to some of the risks and challenges that we’re seeing that’s coming. The first one that comes to my mind, is without doubt, climate change. 

With the rise in awareness around climate change, the industry as a whole sees the need to build more sustainable buildings. Old buildings will soon be obsolete from a standard regulation perspective and from a demand perspective. The young generation would not want to live in buildings that aren’t environmentally friendly.

However, the biggest challenge, in my opinion, is the change in behavioural decision. The younger generation makes decisions in a very different way. It is hard to predict how these decisions are changing, and they’re changing very quickly. This is going to massively impact the way people consume real estate. It is unlikely that someone born in 2020 will choose to own real estate and be indebted for 25 years. They would want to consume it in a much smaller bite sized payments.

During lockdown we saw new trends in consumer behaviour. We saw consumers shifting their preference in housing as they searched for larger spaces, villa and townhouses and properties with outside space, pools, etc. Our homes became our office, a place of learning for our children and our place to enjoy our free time.

People cooked more home made meals and ecommerce was the go to for everything from groceries to clothing. The home has become the most important aspect of our lives and this was made very prevalent during the lockdown.

Personally, I’m quite optimistic for 2021. I think that in the year 2020, we have realized that residential real estate has become one of the big winners from these past eight months. People are spending more time at their homes, lesser times in planes and hotels, and everyone is now making sure that they are living in a space they enjoy and are comfortable in.

Travel and holidays are at a low right now, and people are looking to derive pleasure by creating a comfortable home, and that is what has caused a massive surge in traffic for people looking at properties.

Another key point I would like to highlight is that we are seeing an increase in searches from European countries, and we perhaps owe this to the way the country has handled the pandemic. Dubai is doing a great job at keeping the numbers under control, and is very good at communicating to the outside world what it is doing and why it is safe to come here.

2021 will see a lot of new changes and a lot of new people, and will be an exciting time for real estate in the country.