Developers’ Predicament
Being a property developer has never been an easy task especially for private developers. There are small-scale and large-scale developers. For them it’s a long-term, entrepreneurial undertaking. A developer needs to make sure that the newly designed and designated real estate will have enough value (and meet sufficient demand) to compensate for the time labour and other resources devoted towards the project.
In some cases, they are restricted through community zoning laws. Developers might have to get permission from city planners to change the designated zones to their needs. In complex modern society, however, real estate development requires knowledge of financing, legal restraints, property taxes, business and market forecasting, and project supervision.
The Issue
The key word we are looking at here is, financing.
Real estate as an asset class is currently larger than global equity, as seen in the Savills Report 2020 that estimated the global real estate industry to be $2,696.7 billion and is larger than other asset classes like equities.
Despite such strong fundamentals, the real estate sector has been negatively affected recently by pandemic-related (Covid-19) shut downs and market volatility. Major changes in key living trends had negatively affected the entire demand and supply chain in the real estate sector. PERE Debt Fund reports total debt funds raised for real estate are on a diminishing trend from 2018 onwards.
Financing has been tight in the real estate market due to lack of liquidity thus, casting doubts on the future of real estate prices. Such impact also adversely affected the development/redevelopment market where capital funding is diminishing rapidly i.e., the banks and financial institutions are not willing to give out loans to these developers even if they have collateral. This has mainly affected the small-scale developers (and some big scale developers too).
The Solution
Real estate developers and/or property owners affected by the lack of mainstream financing affecting the sector i.e., not getting funds or capital for their development projects, can look into alternative financing opportunities like LorcFinancing, through LandOrc platform, in order to seek liquidity.
So, they go to LandOrc and LandOrc just fund them using investors’ money? Just like that? Digest Part 2, say ‘hi’ to Part 1 and stay tuned for Part 3.
Sources:
https://www.savills.com/research_articles/255800/307578-0
https://d16yj43vx3i1f6.cloudfront.net/uploads/2019/07/PERE19_04-Debt-digital.pdf
