Are we heading towards a new housing market crash? Will there be a global real estate crash in 2019? How can a real estate company prosper in a financial crisis? These concerns among real estate investors are fueled up with the stream of articles, where analytics scrutinize trends in the market. Let’s take a closer look at the diagnosis and see whether we’re facing a crash as we experienced a decade ago. In this article, we are going to look for a technological remedy for the possible real estate stroke.
The today’s fear of the housing bubble burst has its roots in 2007-2008, when a real estate crash in the U.S. led to a massive crisis. Before the memorable meltdown, the prices of houses and apartments have been on a radical rise.
Experts notice similarities with the market situation in our current decade, where housing investments have flourished, and new estates, or even entire cities have been growing out of nowhere.
Where does the housing bubble come from?
The housing bubble works on the same dynamics as any other speculation bubble. When it comes to the property sector, the problem lies in the housing artificial price overstatement. Due to skyrocketing their revenues, real estate developers and investors have been unreasonably pumping the prices. Naturally, it has been resulting in higher demand for apartments, because potential buyers have been impulsively buying flats and houses, not to overpay even more in the nearest future.
Increased sales results led to even more intensified building investments, are generating more demand and higher prices.
However, this cycle is utterly fragile. As we experienced over a decade ago, the bubble can explode causing a sequence of damages.
What happens when prices are too insane?
The moment the housing prices are going beyond the buyers’ financial reach is the time where the trouble comes. Customers are forced to resign from their buying decisions, and that is happening on a huge scale.
The prices and the whole markets collapse, and everybody loses – customers and developers, who have to abandon unfinished housing blocks, and leaving ghost towns behind.
Are we facing another real estate crash?
There’s no doubt that analytics and expert are deeply concerned about the current situation. On the 10th anniversary of the Lehman Brothers bank’s fall (which is regarded as a symbolic beginning of the world’s financial crisis), the real estate market condition can seriously worry.
For the last 2-3 years, prices have gone exceptionally high. International Monetary Fund has warned many countries about the risk of elevating prices, and the yellow card went to Australia and Scandinavian countries in particular.
Moreover, in Brazil, Turkey, Israel, Columbia, Malaysia, Philippines, Iceland, and Estonia, the property is 100% more expensive since the big crisis, and in India, Hong-Kong, and Peru the prices have tripled.
Symptoms are already there
According to experts, it’s already happening, and the wind of change is coming to us from Asia. What can cause a real estate crisis? Mostly, the situation in China and Japan.
China is dealing with the problem of selling, not only apartments or estates but the entire cities of apartments! Investors have been buying those apartments hoping for another price bump and kept them empty, but the prices dropped by 30%.
Another problem is in Japan, where prices went up the roof, cities are literally depopulating, and customers struggle to pay their home loans.
Dubai, we have a problem
Even though Dubai’s economy is still on the rise, and psychologically the city stands firm as a symbol of wealth, the real estate hick-up is getting louder and louder.
Although the city has shown to be recession-proofed over the last 11 years, the housing prices hit the floor recently.
Following after Mansion Global:
“The average house, referred to locally as a villa, is now trading for less than it did during the darkest days of the global financial crisis and subsequent credit crunch, which hit Dubai the hardest in 2010-11. It’s also lower than at any point since oil prices crashed in 2015, according Property Monitor, which is powered by Cavendish Maxwell.”
Similarly, to other countries affected by the decline, nonchalant building new real estate investment has very much to do with the current situation.
The downward trend in property demand has affected the local stock market as well. Emirates Leaks confirm that the stagnation is obvious, and it’s not going to pull back before 2021:
“According to the American network, Craig Blump, head of Middle East research at Jones Lang LaSalle, told the financial mediation that 2018 witnessed only the completion of 22,000 homes, and expectations are continuing for the housing market in Dubai to stagnate.
The network added that the real estate market in Dubai has peaked in 2014 and continued despite estimates that the sector would see a rebound, but the recession in the real estate market continued.”
Technology to the rescue
Those signals from different part of the globe, and the property demand being hammered is giving shivers to real estate investors. What should they do when news conclusions far from optimistic?
In the first article from our series Real Estate Technology, we emphasized the meaning of PropTech – property technology and its potential impact on business models and diversification of revenue streams.
As we highlighted, despite the real estate market has been a goldmine over the last few years, this sector has tended to be resistant or, at least, unenthusiastic about the technological possibilities.
New business models
Although the real estate sector hardly finds a place in budgets for R&D, the reports show some more optimistic tendencies about increasing investments in PropTech companies worldwide.
There are some visible touchpoints between real estate and utterly-hyped digital disruption. You can take such spheres as rental platforms, sales platforms, property’s digital administration, smart buildings, or empowering real estate customer journey with web and mobile applications or VR solutions.
Yet, there’s much more to come up with, shifting from the offline to an online business model can be a lifeboat for property owners and investors.
How can real estate sector learn from startups?
Perhaps it might sound cliché, but the business landscape is changing fast, and to thrive you also need to adapt. What can bring some valuable inspiration to your table, is the startup business approach.
As Garrett Moon, the CEO of CoSchedule (the fastest growing startup in North Dakota), nails it in his amazing “10xMarketing Formula” book, that startups put everything at stake to keep on the surface (results or lights out!). However, most of their projects are based on assumptions. Due to limited funds and tight deadlines, they can’t afford to pursue features or entire products that they initially assumed would work, but eventually missed the target.
Startups launch their products equipped with the knowledge and insights they have at that particular time. After shipping it to the customers’ ocean, most of them will sink or not survive the first heavy storm, but some will learn how to swim or sail and will either iterate or pivot.
The way Uber handled it
After a while, those business newbies need to implement another aspect in their strategies. And that is – diversification. Not only their MVPs have to evolve as those get older, but the owners have to open their minds for other possibilities, even if at first, they seem to be reckless.
Uber is the most recent and meaningful example which shows that even startup that turned into a world-renowned giant, is forced to seek different ways to stay in the game. As they just announced in San Francisco, Uber releases a set of app updates, including merging food delivery with ride-hailing services.
But that’s not the most surprising turn. This gig economy titan introduced a feature that could be regarded as insane. The app will display various options for transport as alternatives: buses, trains, electric scooters or bikes.
Why are they dragging their customers away from their core offer? Well, quoting after The Guardian:
“To some extent, we’re competing against ourselves,” Khosrowshahi told the Verge of adding public transit options. “But we have the philosophy that if there’s a better product out there for the user, and we think an integrated movement solution is better for the user, we should be the ones competing against ourselves versus others doing it.”
The way you can handle it for real estate
Injecting diversification can bring as much value as making friends with technology. For you, as a real estate owner or investor, choosing them both can be a way to secure yourself from emerging housing slowdown.
The secret is behind becoming more user-centric. Despite its financial drawbacks, Uber has put all its eggs in one basket – to treat every customer as a VIP.
In our previous article, we outlined a new business model that would match your real estate investment closely with the residents, and shopping and services vendors. This environment would be connected with the mobile app and personal lockers placed inside the apartment blocks.
This game-changing scenario would do both – diverse your revenue sources (commission rate from groceries, service providers, and e-commerce platforms, plus – subscription fees from all the lockers in each building) and convert into a technological business model.
Design Sprints – the way to transform your idea into a prototype
The above project is just an example. There are plenty of possibilities to reinforce your investment with software development and prepare yourself for the survival-of-the-fittest time in the real estate world.
Teaming up with a software house during design sprint workshops is an excellent way to incubate your idea and validate it in laboratory conditions.
How would design sprints look like in practice?
At DeSmart, we make the most of five days of workshops, where:
- Day 1 means Discovery. This is where we go through your business assumptions, your customers’ needs, and problems and place them on the real estate map.
- Day 2 means Sketching. It comes to dropping ideas and sketch essential functionalities of your future product.
- Day 3 means Ideation. The name tells it all. We get together to generate dozens of ideas and evaluate them to choose the one to make a prototype.
- Day 4 means Prototype. It’s a fascinating process when your idea becomes something tangible. A prototype of your future product is ready to get validated.
- Day 5 means Testing. Time to check how the prototype performs. The testing process is a real deal, because it delivers invaluable feedback from the end-users, and forms a basis for upcoming improvements.
Are you ready to design your product from scratch?
After five intense days of creation, you will be in possession of:
- the business model or product canvas,
- user stories maps and prepared scenarios,
- detailed scope of work with time and costs,
- clickable prototypes,
- validation from real users.
Get ready for your technology change today and contact us, we will help you make it happen.