Novaston, one of the leading property management companies in Eastern Europe, shares the big three challenges property developers are facing in today’s evolving real estate market.
These three challenges were presented at a recent real estate conference in Belgrade, Balkans Property Forum 2023, where the CEO of Novaston, Mia Zečević moderated a panel called “Building the next chapter – SEE Real Estate Development Update”.
Here is what the real estate experts had to say:
1. Rising Construction Costs & Labor Shortages:
The real estate market is tackling inflation pressures affecting construction costs and project budgets.
Fluctuating prices of construction materials and labor shortages contribute to financial challenges for developers, as increased costs may hinder project profitability and viability.
Nevertheless, Mia Zečević highlights that there are ways to mitigate these risks and obstacles.
“One of the strategies is to establish a robust business environment with reliable partners well in advance of entering the project itself. This requires a thorough analysis of the market, location, and setups”, says Mia Zečević.
Some key steps Novaston advises to lower costs include:
- Cultivating a professional and cooperative relationship with the local municipality;
- Recruiting professionals and individuals who are enthusiastic about their work;
- Implementing more eco-friendly initiatives to reduce environmental taxes and penalties associated with noncompliance;
- Leveraging knowledge and modern technology to streamline all processes in the project development.
2. Dependency on Credit Buyers & Difficulty Obtaining Project Financing:
The dependence on credit buyers in many real estate markets, coupled with evolving financing dynamics influenced by central banks’ tightening monetary policies, creates uncertainties for developers.
Fluctuating interest rates and the availability of development loans impact the financial feasibility of projects. Developers may face challenges in securing financing and adapting to changing interest rate environments, potentially affecting project timelines and profitability.
Cumulative inflation rates highlight Hungary at 42.4%, Serbia at 32%, and Slovenia at 22.1%. Novaston points out that, unlike other counties in the region, Serbia stands out with over 90% of real estate transactions being conducted in cash, providing a unique resilience in the face of financial uncertainties.
Novaston advises developers not to rely heavily on the current market situation, as the ratio of debt/cash buyers can change. The best way is to offer all potential buyers payment models that align with the long-term sales strategy and business model.
“Everything is interconnected; the economy functions as an organism of flows and funds, requiring participants to scrutinize the financial situation carefully. Today, the terms for project financing are notably challenging and demanding, posing difficulties not only in terms of interest rates but also in meeting the requirements outlined in the application form. Our recommendation is to regard financial costs as fixed expenses in the budget, particularly for projects with a shorter exit strategy”, says Mia Zečević.
3. Sustainability Mandates and Green Agenda Compliance:
Meeting the requirements set by the Green Agenda, particularly in regions like Southeastern Europe, introduces challenges for real estate developers.
The need for sustainable practices and compliance with ESG standards can be a complex hurdle, especially when balancing short-term profitability with long-term environmental considerations. Failure to align with sustainability standards may result in increased risks, difficulties in obtaining loans or development investments, and overall worse financial conditions for real estate projects.
Novaston, suggests investing in green, net-carbon projects to enhance the business’s value of projects and to align with evolving sustainability expectations. Embrace green practices and incorporate them into your business model.
“Green certifications for real estate projects can influence a 10% reduction in urban development fees, potentially lowering the overall cost, particularly for larger investments and prime locations”, says Mia Zečević.
Addressing these challenges requires a strategic and adaptive approach from real estate developers, encompassing careful financial planning, sustainable practices, and a keen understanding of market dynamics.
Diligent budgeting is your ally in navigating economic cycles. Invest strategically in new businesses that fuel future economic growth. Tangible assets such as real estate and commodities have historically weathered inflationary storms.
But most importantly team up with experienced real estate consultants that are knowledgeable about the local market and global trends, like Novaston.
For more information about Novaston services visit: novaston.com