Real estate markets around the world are heading for tough times. The size and length of any correction is anybody’s guess. A market correction is coming and those with capital and using AI and PropTech will benefit the most.
We have been here before
Market corrections are not new. Real estate markets corrected in response to the Global Financial Crisis (GFC). In the GFC many investors did well through a combination of dumb luck and timing. Good investors are greedy when others are fearful and fearful when others are greedy.
In response to the GFC, property markets experienced significant price declines. Blue chip real estate looked cheap. Investors filled their boots in markets around the world from Auckland to London.
But did they get a good deal? Sure, investors did well from the combination of buying low and rapid market growth. But only those investors who bought early did well. The laggards who followed bought with the herd. They purchased with biased market information. And overpaid out of fear of missing out.
Investment Conditions Have Changed
The difference between now and then is that conditions have changed. New taxes exist to “level the playing field” for owner occupiers. There are new rules relating to funding approval. And costs for renting property out have increased. The UK has the ironic scenario where an investor can make a loss and pay income tax on their loss.
Rents are Increasing, and Housing Supply is Decreasing
Costs and taxes are increasing. A lack of housing supply will limit the length of time and depth to which prices fall. Many landlords have left the market in response to costs and taxes. This has reduced housing supply putting extreme pressure on rents.
The opportunity for investors will once again exist. But more than ever, investors will need to make better investment decisions. (You might be interested to read our top tips for investing in 2023 here).
AI and PropTech will turn Small Investors in to Super Investors
The difference for small investors between 2010 and 2023 is access to technology. Small investors no longer need to rely on incomplete or one-sided market data. Or pay market access costs to get the best deals. New technology will mean that smart investors will prosper. Many will turn small holdings into large portfolios.
PropTech won’t level the playing field, it will stack the deck for small investors. Here is why.
Many investors stick to what they know. They stick to properties in their immediate area or areas they understand. For many investors these won’t be the best investment location. They equate safety to proximity.
PropTech will make more profitable markets more accessible. The world has become smaller, capital more global and investors are becoming younger. Younger savvy investors will be able to access the best return not only the closest market.
Market Analysis and Critical Thinking
Property taxes are complex, and real estate markets are opaque by design. Agents rely on controlling access to market data making meaningful analysis impossible. New technology means investors now have access to content and data from all over the world.
They will be able to use data and tools to determine for themselves the best investments. Not rely on others with different motives.
Many investors prefer new-build property for obvious reasons. But they also rely on agents who present them with one opportunity at a time. PropTech will provide access to an array of opportunities rather single opportunities.
AI will change so that investors will be able to search based on more meaningful criteria. Such as forecast net return after tax or return on capital. This will lead to new, more international thinking for investors.
Property taxes are changing all the time. At the same time different markets use different terminologies. Or even worse use the same term with different meanings. Investors can’t forecast net return after tax and compare investments.
PropTech will change this. PropTech will make it possible for investors to better analyse investment opportunities. PropTech will make it possible for investors to then compare opportunities from all over the world. It will mean they can determine what investment best meets their buying criteria.
Buying Power through Aggregation
Individual buyers have limited buying power in both the new build and secondary housing markets. Investors have the most leverage in new build scenarios. A developers sale price is an equation of cost and risk. Developers will soon need to discount to reduce market exposure. They won’t do this at an individual unit level they will do it in volume. They will trade at discount to large investors and institutions. Small investors won’t get a seat at the table. If you’re not in the room you’re not in the deal.
PropTech will allow investors to pool their capital to create buying power. Developers will prefer pooled investors. They will disaggregate transaction risk. Additionally, they won’t command the same level of discount. Both parties will benefit.
Management and Portfolio Development
Platforms exist that allow investors to manage their investments from a property management perspective. Few exist from an asset management perspective. Investors are not making the best use of their capital. Being a portfolio landlord is not a buy and forget business. It is about managing the financial side of your business. Managing debt levels based on market conditions. And working excess capital and monitoring and managing expenses.
PropTech will provide investors with the tools and cues to make better decisions. Those who work their capital in a time of rental growth and falling prices, will be able to build a portfolio.
Are you thinking about buying an investment property?
If you are thinking about buying a property, you need to make sure you do your homework before you buy. Mistakes made investing in property are very expensive to fix.
We have built Du Val Global to help investors think through the issues which matter when it comes to investing.
Du Val Global
We built Du Val Global, powerful real estate investment software designed to help investors make better investment decisions. Our platform provides investors with the real estate investment tools to help with critical decision-making, including
Research – access to powerful property analysis provides real-time market research, allowing
landlords to have a complete picture of tenant economics, prevailing
rents, and capital values
Financial Analysis – a property investment tool that investors can use to create financial models to determine net return after tax and return on investment. Investors can understand specific tax implications. Our property comparison tool allows investors to compare investments on an after-tax basis to determine the best investment for them. Investors can even compare properties in different countries
Du Val Dynamic Pricing™ – Du Val Global offers a range of properties for sale from leading developers in Australia, New Zealand, and the United Kingdom via its proprietary Du Val Dynamic Pricing™ algorithm. This sophisticated pricing model levels the playing field for small investors through aggregation, providing discounts of between 7.5% and 15% from retail prices, which, until now, have only been available to large institutional investors.
Portfolio Management – a property portfolio planning tool investors can use to monitor and track the performance of their investments.
Interested in giving our platform a go? Start your free trial today at Du Val Global.