Real estate investment has been considered one of the most secure and safe ways to invest money for decades. Many people consider real estate to be the best form of investment for both individual and business investors. However, the market is changing in 2023, and there are some potential risks that you need to be aware of. Being aware of these risks in 2023 will allow you to take the steps to protect your real estate investment against an unpredictable market. Here are the most common risks that could be impacting real estate throughout the year.
Soaring Inflation and Interest Rates
Inflation is affecting us all, and it’s not just impacting real estate. Inflation is affecting everything from food prices to energy bills. However, soaring inflation and interest rates could be impacting real estate. House prices are going up massively, but so are mortgage rates, so if you’re investing in private property you may find it harder to keep up with payments. Considering whether or not you’ll be able to keep up with projected inflation rates is fundamental when deciding whether to stick with an investment or sell it. Getting stuck with an investment you can’t afford can damage your investment portfolio.
Geopolitical Factors
Recent political events across the world have also had a significant impact on the real estate market. The recent war in Ukraine has resulted in rising energy costs across the world, but it is particularly felt across Europe. Higher gas and energy prices can reduce consumer spending, reducing the number of people on the market in terms of renting. The war has also contributed to many materials essential for property development and building – key commodities like steel and nickel have seen 30 and 45% increases since February 2022. It’s important to keep these rising costs caused by the war in mind, and factor them into your plan, if you’re buying or developing more property.
Changes In The Workplace
The pandemic meant that the white-collar workforce was able to work from their own homes, and many of these offices and workplaces have continued this practice well into 2023. Many of the workforce now prefer work positions that offer hybrid working, meaning that commercial property is less in demand. Although it is unclear to see how this might change in the future, at the moment, commercial property is less in demand. If you’re considering investing in commercial real estate, you may need to consider that there is a reduced market when compared to commercial real estate in the last decade.
Sustainability On The Market
One of the main things investors, renters and buyers are now looking for when it comes to real estate is how sustainable and eco-friendly property is. The push for sustainability has effected all markets to some extent, in the fashion market most of all. However, it is also affecting real estate. Property now needs to be more efficient in terms of daylight and retaining heat, for a renter or buyer to consider living there. Furthermore, ESG Requirements are changing to force property developers to meet green targets across the United States and the European Union. If you’re investing in property development, you need to keep the new push for sustainability in mind or you could lose out big time.
Labour Shortage
There has been a huge labour shortage across the world that is effecting virtually every industry, however, property and real estate have been some of the worst effected industries. The pandemic has meant that many people are unable to fill the positions they used to, and there is a mismatch between worker skills and the positions available. The areas which are feeling the labour shortage more acutely are lower paid positions, such as factory workers and construction workers. This means that there is a supply and labour shortage facing property development, and it could be more costly, so you will need to keep this in mind.
Rising Levels of Real Estate Scams
Unfortunately, there are some who would take advantage of property developers and investors and conduct scams, which is rising in 2023. Two of the largest real estate scams include commercial real estate scams and home inspection scams. Commercial real estate scams are targeting investors, and misappropriation of funds is the most common way they are conducted. For example, if you use a property management company who uses rent money to pay for property, this is misappropriation of funds. Commercial real estate fraud can also include fraudulent documents. Home inspection scams are also significantly impacting property investors. Investors employ home inspectors to decide whether a property is worth investing in – however, fraudulent home inspectors will hide problems with the home to trick an investor into parting with their money. You will need to remain vigilant against these scams if you want to successfully protect your property investment.
Supply Chain Interruptions
Interruptions in the supply chain have been effecting the real estate market for a while now. There are multiple reasons for the worldwide supply chain interruption, such as the shutdown of China during the pandemic, recent climate disasters, and inefficency. This means that not only are essential commodities for property development, they are also harder to come by. This means that you could be waiting for essential development materials for weeks, maybe even months. As you can imagine, this could mean that property development and investment may take a lot longer than before, meaning you end up spending more money. If you’re considering investing in property development, you should be aware of the supply chain issues which show no signs of slowing down going into 2023.
Cyber Targeting
Cyber scams are also a significant problem facing property investors. Now that many properties are ‘smart properties’ (their home security systems are digital based, as well as appliances are in the home) cyber hacking is a huge risk facing your property investment. Rented properties need to have great cyber security services in place to protect their digital home security, in order to protect the tenant. If there is a breach due to lack of cyber security, you could be liable to legal action. Make sure any smart properties in your portfolio are secure and adequately protected, to protect yourself and the tenant.
Real estate investment is still one of the most sensible, lucrative and stable investments you can make despite recent economic and political changes. By keeping these risks in mind and taking the steps to protect your real estate investments, you will secure your equity and ensure your portfolio remains intact.