Ten disruptive real estate trends are emerging
The Bangkok skyline seen from above from the Saphan Taksin skytrain station.
Covid-19 has catalyzed and accelerated a great disruption in the real estate market that was expected to occur over the next five to ten years, but will now happen sooner.
According to Jugkarut Ruangratanakorn, managing director of Chon Buri-based property developer Ratanakorn Asset Co, 10 disruptive trends will test the property market in 2022 and beyond:
1. National, economic, social and demographic structure
Thailand’s GDP growth has been below potential for several years as its population growth is low. There are also no new resources, no foreign direct investment, no new economy or Industry 5.0 to help stimulate economic growth.
Thailand is also becoming an aging society with a growing number of older people, but a declining birth rate. The average family size is shrinking, with a lower marriage rate and a higher number of singles.
As a result, there will be no need to have a new home for a family. The new generation prefers to rent and move. Thailand is emerging as a low birth rate society with an increasing number of elderly people. This will influence the real estate market.
2. Debt burden and attitude towards assets
Thais get into debt faster and deeper at a younger age. The household debt ratio is currently 93%.
Most debt comes from consumption and education, not from commercial or real estate. Those who are in debt without owning any assets cannot create wealth.
Despite capitalism, most local people do not understand wealth and how to create it. They want lifestyles and largely spend on consumption, but are not interested in owning assets.
The pandemic has swelled assets around the world. Governments have used quantitative easing (QE) to support the economy. It does not create a real industry, real demand or real productivity, but increases the value of assets.
For the new generation, assets and property are a long-term burden, not wealth. With the Internet of Things, they can work from anywhere and stay anywhere. They see job mobility and home relocation as an easier way to live, so they don’t have to buy a house.
With the increase in the cost of living, saving money for the purchase of real estate is also more difficult.
Jugkarut Ruangratanakorn, Managing Director of real estate developer Ratanakorn Asset Co.
3. Lifestyle and experience
The new generation is focused on lifestyle and experiences rather than holding assets all the time.
In the future, there will be two tribes: those who understand wealth creation will be a beneficiary, and those who understand the way of life will be a payer. Most people will be a payer and very few will be a beneficiary.
4. Home is one of the four required conditions
The importance of owning a home will come after consumption, health and wellness, lifestyle, entertainment, travel, education, cell phones, and cars. People have the impression that a house is a lifetime debt with payments of 30 to 35 years.
5. Rent and buy
Renting will replace purchase due to the convenience of moving, small family sizes, and different costs with no debts or obligations. Buying a home with a mortgage means buyers face a long-term burden as income growth is precarious in a depressed economy.
Even if the monthly payment of a mortgage is the same amount as that of a rental housing, some people still prefer to rent because it does not have a long term commitment.
6. Land and real estate tax
The land and property tax will weigh heavily on homeowners and curb the purchasing power of those who wish to invest in real estate for the long term. The higher the cost of ownership, the higher the price of the property will be.
7. Regulation of real estate development
Regulations relating to real estate development will increase development costs. As a result, development and land costs and household debt rise in the face of slower economic growth, population growth, and growth in purchasing power. This problem will become more serious.
8. Ownership over other financial innovations
Ownership is disrupted by digital assets, cryptocurrency, tokenization, real estate investment trusts (REITs), mutual funds, the stock market and the bond market. With these financial innovations, the property is no longer owned by a single owner.
Real estate investing in the future will be the ownership of a mutual fund, and no longer a property right. Those who understand this concept and opt for these financial innovations can define the next era of real estate.
9. Location is not a definitive answer
Despite a good location, a project can still fail because its product, price, design and development do not meet the needs of consumers.
Market trends and consumer behaviors are changing rapidly, with each generation having different preferences for buying real estate. The factor that defines a good location is constantly changing based on the mindset of each generation. The shorter generation gap also means that these trends will change more quickly.
For example, family tradition in the past has seen preferred children inherit land for farming, while less preferred children were granted land by the sea. But nowadays the expensive plots are the latter. In short, the location is the choice of every era.
10. Economy of sharing and co-ownership
With co-living spaces, co-working spaces, multi-purpose spaces, timeshare and swap programs, people will have more choices to share instead of just owning a property.