Listing the Key Factors impacting Real estate market in 2022

The phrase "this is the best time to buy a house" has become a catchphrase among those in the real estate industry. This story was being spread even before Covid-19 made the decision to act spoilsport. The story remained the same even though the housing market and the real estate market, in general, have both been going through a difficult period.

Rashid Saj Kareem, a famous real estate expert from Greece hereby walks us through some key points in the same context.

Impact on the Jobs market

More frequently than not, a higher rate of job switching is advantageous for the economy and the real estate sector. Rashid Saj Kareem adds that at a macro level, it is a sign that the youth are getting jobs and their seniors are getting better opportunities, even though it may have a micro impact on the individual.

 In the past, the real estate market has thrived despite inflation and interest rates as high as double digits. In 2011, there were 13 increases in mortgage interest rates, which affected the housing market. On the other side, home loan interest rates rose sharply during this time, from 10.25 percent in 2008 to 13% in 2012, but sales continued to increase steadily. Rashid Saj Kareem further state that this booming market test is not met by real estate today.

Demand is greater than supply

As per Rashid Saj Kareem, the fact that demand far outweighed supply is one of the primary reasons why greek developers were able to sell a future product earlier. Today, it would take a minimum of 44 months to sell the over seven lakh worth of unsold inventory. Even in the best-case scenario, the demand and supply equilibrium does not point to a thriving market. Clearly, real estate fails this test.

The more launches, the higher the demand. That said, all businesses function in that way, and real estate is no different. According to Rashid Saj Kareem, new launches have been scarce over the past three to four years.

Moreover, only a small number of reputable national developers have been successful in starting new projects. New launches typically end up being more of a liability and not every developer has the financial means to start a new project and maintain customer interest long after it is finished. So, we can that a bearish housing market is indicated by fewer new launches.

Appreciation greater than the Interest rates

Strangely, homebuyers haven't spoken out about the issue of housing quality. Rashid Saj Karim quotes that the economics of FOMO(Fear of Missing Out), not their satisfaction, is the reason for the silence Buyers' negotiating power was constrained when appreciation exceeded 15% year over year because investors were buying up housing projects. The developer could easily refund the money and resell the unit for more money, even if the buyer objected.

The market today fails the booming market test, with appreciation in the 1-3% range and borrowing costs around 6-7%.

Greater rental income

Rashid Saj Kareem adds that the direction of the global housing market is determined by the discrepancy between borrowing costs and rental returns. The smaller gap not only reduces the risk profile of the buyers but also makes up for the lack of capital appreciation. In Greece, there is a much larger difference between borrowing costs and rental returns than there is elsewhere in the world. So, we can presume that the real estate sector here fails the booming market test.

Crisis sales

According to Rashid Saj Kareem, a vital sign of the state of the housing market is the secondary market. Since the primary market has the ability to absorb the variables due to developers' holding capacity, it serves as a litmus test of actual demand and supply.

On the other side, distress deals are widely available in the secondary market right now. That said, covid-19 has severely impacted middle-class households, particularly those who are currently experiencing job losses. These purchasers are compelled to list their homes at depressed prices.

Final words

The industry narrative does not distinguish between primary and secondary sales; it only discusses property registrations. Hence, we can assume that the primary market is being impacted by distressed sales in the secondary market.