Global uncertainties such as the COVID-19 pandemic alter market behaviors, which bring about new sets of challenges and opportunities. In the real estate industry, potential shifts in investors’ behavior is driven by their own outlook on the performance of the industry.
During the first month of the enhanced community quarantine in Luzon, PRIME Philippines conducted a survey to real estate investors and asked them about their sentiments about the current property market situation. They were asked questions about their willingness to buy and sell properties. The respondents’ answers provided some relevant insights on where the real estate industry currently stands in the buy-sell quadrant chart.
There are five possible scenarios in the buy-sell quadrant: (1) sellers’ market, (2) balanced-stagnant scenario, (3) buyers’ market, 4) balanced-ideal scenario, and (5) balanced scenario. Sellers’ market implies that there are more people looking into buying real estate properties than people interested in selling properties. With this kind of market, land owners would have the upper hand in terms of negotiations. Buyers’ market, on the other hand, indicates that demand for land is seen to be lower than supply, which increases buyers’ negotiating power. In a balanced scenario, there is an observed equal amount of supply and demand for properties, which means the two are at a level playing field and neither of them has the advantage in negotiating.
Often, crises and other unpredictable events lead to generally lower investment confidence, and therefore, in the case of real estate, shortages in demand are expected. However, based on the results of the survey, the Philippine real estate industry is currently at a sellers’ market. This applies for the land, retail, and office sectors. It has been observed that shopping centers are still able to command rental rates and office buildings in prime areas can still negotiate within their target rates. However, as people are expected to opt for isolation or social distancing with or without the imposed community quarantine due to greater concern for health, heightened uncertainty is expected across all sectors of the real estate industry.
Although the sellers’ market scenario describes the property market as having increased demand for properties, a closer look into the data illustrates that the industry may be approaching the balanced-stagnant scenario before shifting to a buyers’ market entirely. This foreseen stable transition indicates a certain level of safety as oversupply of properties are not seen as an immediate concern.
Given the uncertainty in the current market conditions, nothing is expected to be definitive in the plans of real estate investors and there is still the possibility of a full shift to a buyers’ market. This may happen since many investors are looking for more sources of cash inflows. Because of this, an increased number of property sellers may become more willing to negotiate prices considering the ongoing situation.
Investor interest is definitely a crucial factor in determining the future state of the property market. But while every business is trying to survive in this health crisis, real estate practitioners should prepare for any possible scenario while continuing to feel the pulse of the market.