Real estate in uncertain times: What professionals in Europe need to know

Even though residential real estate remains a stable asset class, the state of the global economy has impacted the industry. After a period of virtually uninterrupted development and price increases across all developed markets, supported by strong economic growth and low interest rates, the European residential real estate market is now in a state of upheaval.

What are the factors driving these changes? Which market developments should real estate professionals pay extra attention to? How can real estate professionals better tackle these challenges?

In this article, we share some insights into the current market dynamics.

What market developments should real estate professionals pay extra attention to?

1. The housing market slowdown is reflected in the buying and selling dynamics of several countries

The war in Ukraine, resulting in a surge in energy prices and an overall cost-of-living crisis, affected operations on the real estate market in various ways, i.e. through rising construction costs and supply chain-related difficulties. Furthermore, the purchasing power of potential buyers is directly influenced by rising interest and inflation rates and changes in how banks factor energy costs into their calculations for property loans, putting an additional burden on aspiring homeowners’ budgets for financing requests.

These factors have caused the European residential real estate market to lose steam in the past few months, and this slowdown is reflected in the buying and selling dynamics in various countries as well as a depressed mortgage climate for first time property buyers in particular. Germany is a good example – when looking at our offers data for the past few months, we noticed a couple of interesting trends:

• An increase in the number of listings published online
• An increase in the average amount of time for which these listings were on the market
• An increase in the proportion of offers that had at least one downward change in the selling price, for example, because of the lack of potential buyers

These trends hint at a slowdown in the rise in housing prices or even a decline in prices in the upcoming months.

2. The energy crisis makes ESG-related matters more relevant than ever

Efforts to combat global warming have put ESG-related issues top of mind. Recent regulatory changes and political and economic events have made ESG and the increased energy efficiency of buildings a key focus for real estate and finance professionals. In particular:

• At a European level, the revision of the European Performance of Buildings Directive (EPBD, 2021) and the Renovation Wave Strategy, upgrading existing regulatory frameworks to meet the EU’s higher targets and ambitions.

• At a national level, new and updated energy-related regulations such as the updated calculation method for the "DPE" (Diagnostic de Performance Énergétique) in France or the new "Effizienzhaus-55" standard in Germany raising requirements for what is permissible for a new building’s primary energy demand. Another example can be seen in Switzerland, where energy and ESG-related advisory will soon be mandatory for banks, creating additional struggles and challenges for them, as they will need to quickly establish standards that meet the new requirements.

• On the political side, the invasion of Ukraine caused a sudden increase in energy prices, further reinforcing the importance of energy performance-related matters.

Using our automated valuation models, we recently ran an analysis of the impact of energy performance on property prices in France, Germany and the Netherlands. Unsurprisingly, data shows that energy performance has (and will most likely continue to have) a clear impact on European property prices. Here are a few examples:

Download our ebook to get deeper insights into the impact of energy performance on property prices and the recent energy-related developments in European real estate:

What do these recent developments mean for real estate and finance professionals?

The current state of the market represents a real challenge for professionals working in the real estate and financial services sectors. They will need to focus on several key topics to thrive in this particular environment.

For realtors, brokers and intermediaries, it will become increasingly crucial to understand how market dynamics are shifting and how quickly they do so. They will also need to redouble their efforts to find the right buyer for the right property and know the exact purchase price to achieve.

Additionally, when defining the optimal purchase price of a property, it will be increasingly important for real estate professionals to understand how its individual characteristics impact the value. While macro factors play an important role and may impact property prices at a regional or national level, micro factors such as the energy composition of an individual unit or the detailed breakdown of renovation needs are not to be underestimated.

One of the increasingly relevant micro factors to pay attention to is, as mentioned above, the level of energy efficiency of a given property. Accessing accurate ESG data has now become crucial for real estate professionals to understand the impact of energy performance on property prices. Leveraging these insights can help real estate and finance professionals in several ways. For example:

• Banks will be able to better factor climate and energy-related risks into their credit risk models

• Institutional investors will be able to assess the impact of energy performance on their portfolio correctly and refine their real estate investment strategies accordingly

• Financial advisors, brokers, intermediaries and real estate agents will be able to reassure their customers in these uncertain times and better inform them of which potential property renovations they should make

• They will also be able to provide accurate information on a property’s energy score to their potential and existing customers. The energy efficiency score is becoming an increasingly important purchasing criterion, and home buyers are more and more often considering local energy supply costs in their search filters.

Accessing accurate and reliable real estate data is more critical than ever to tackle the current challenges

In this climate of high inflation and market volatility, relying on technologies such as PriceHubble’s can be a real game-changer for real estate, mortgage and wealth management professionals. Its data-driven models can determine and keep track of the current statistically most probable market and rental price of a given property based on several hundred price-influencing factors. Based on the learned patterns and correlations in the market, it can also provide a forecast of property value developments for the next 24 months. "Such new valuation models have already established themselves and will play an increasingly crucial role in real estate and finance in the longer term", explains Stefan Heitmann, Founder and Chairman of PriceHubble. For example, the European Banking Authority highlighted the use of statistical valuation models in its May 2020 revised guidelines on loan origination and monitoring.

Transparency is at the heart of what we do at PriceHubble, and it is key to navigating the current market: "PriceHubble was founded in 2016 with the mission to address the lack of transparency in the real estate industry. Now, and especially in these uncertain and volatile times, data and transparency are key to tackling the challenges created by the current market situation", says Stefan Heitmann. He adds: "It doesn’t stop with the point of transaction anymore: real estate and finance professionals now have to provide their customer base the right tools to stay on top of their property. What the industry used to do for decades, i.e. look at the property and its respective value track, is simply not good enough anymore. We bring the data solutions to allow a new level of customer engagement".

In addition to needing more transparency, finance and real estate professionals are also increasingly interested in emerging topics such as ESG. "I believe that ESG is more crucial than ever as a data and skill set in the property market of the future", says Stefan Heitmann. Access to accurate, reliable and comprehensive energy-performance data is crucial, but the availability of such data varies from country to country. PriceHubble aims to address this need: "Whether for individual real estate investors, buyers and tenants, institutional parties or financial institutions, energy performance is becoming an even bigger consideration factor for all. As a leader in ESG-related property analytics, PriceHubble will continue to provide guidance and in-depth insights in this area".

Don’t hesitate to contact us if you want to learn more about how real estate data and insights can help real estate professionals tackle the current market-related challenges.