The real estate market has been severely injured for the past few years, but with 2023 fast approaching, looking ahead and considering what potential threats may be looming on the horizon are indeed lucrative, experts from Aurora Real Estate said. From inflation and interest rates to supply chain disruptions and ESG requirements, there are a variety of factors that could have a major impact on the industry in the coming years. In this blog post, we’ll explore some of these key threats and discuss how they may affect both buyers and sellers in the real estate market. So if you’re eager to stay informed about what lies ahead for this dynamic field, read on.
Inflation and Interest Rates
The real estate market is sensitive to changes in inflation and interest rates. As inflation increases, buyers may be less likely to purchase property due to decreased purchasing power. Meanwhile, rising interest rates can make it more expensive for buyers to obtain mortgages, which could also lead to a decrease in demand. Besides, higher interest rates can lead to increased supply as homeowners are less likely to refinance or move due to the increased costs associated with doing so. This could result in greater competition among sellers and ultimately drive down prices.
Supply Chain Disruption
This market is also facing a major threat in the form of supply chain disruption. Though we’ve been in the post-pandemic era, the shadow of the COVID-19 pandemic has still brought to light the global supply chains’ fragility, and disruptions have been felt across all industries, including construction. With disruptions in manufacturing and transportation, materials are becoming harder to come by, and prices are skyrocketing. This means that projects may be delayed or canceled altogether due to cost constraints. Plus, labor shortages caused by border restrictions and social distancing measures also make it worse.
Housing Imbalance
Since last year, we’ve been facing a situation where an inadequate supply of affordable housing is haunting the world, creating a stark contrast with high demand in certain areas. The result is that homeownership becomes increasingly unattainable for many. This is called housing imbalance. One factor contributing to this imbalance is the lack of construction and development, especially in urban centers where population growth has increased rapidly. With fewer new properties being built, existing ones are put on even higher demand, making them more expensive. Additionally, investors who purchase multiple properties as investments add further pressure on single homebuyers trying to secure their first property by driving up prices due to high demand and low inventory.
ESG Requirements
ESG (Environmental, Social, and Governance) requirements are becoming increasingly important in the real estate industry. ESG refers to the standards that companies need to meet with regard to environmental impact, social responsibility, and corporate governance. These criteria are being used by investors as an indicator of a company’s long-term sustainability. Real estate developers who fail to meet ESG requirements may find it difficult to attract investment capital in the future. Investors are looking for companies that prioritize sustainable methods and bring a positive impact on society. From green building certifications like LEED (Leadership in Energy and Environmental Design) to energy-efficient design techniques, businesses can reduce their carbon footprint in numerous ways.
As we have seen, there are several major threats facing the real estate market in 2023. Ultimately, the key to success in this ever-changing landscape is agility and flexibility. Real estate investors can confidently navigate even the most turbulent waters by remaining vigilant and proactive in addressing potential threats while capitalizing on emerging opportunities.