Hotel rates and high-end rental costs under pressure


Wednesday, January 31, 2018

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The Kingston and Montego Bay skylines are peppered with cranes from new construction. That brings jobs, purchases of supporting goods from other businesses and new housing options, which are good things. In fact, this creates financing opportunities and new career opportunities for those who can twin technology with real estate.

The building frenzy also brings additional supply to the real estate and short-term rental market and competitively speaking, that means consumers win and investors have to be more selective if they want a fair return on investment.

Here are challenges and opportunities for people in the real estate sector, as outlined by our income ideas panel. Attorney-at-law Robert Taylor cautions: “We see the supply and demand dynamics at play. As more inventory enters the market, renters have more choices and rental rates will be negatively impacted.”

Essentially, rental rates for higher-end properties may be under pressure.

Taylor continues, “In fact, as in other markets, as short-term rental properties come on market and drive down prices, some hotels are forced to adjust prices, shifting the demand for short-term stay to the traditional providers, thereby softening demand for the Airbnb and other short-term aggregators.”

So what do you do if you want to make a reasonable rate of return on your investment?

Taylor advises, “As an investor in residential property, it means that a good investment today may not be a good investment tomorrow. By that I mean as developments come into the market, both location as well as design standards may improve and make previously desirable properties less attractive.”

Developers are forced to keep up with trends that well-heeled consumers want, and that means investors also have to upgrade to attract high-end tenants.

Taylor notes, “Investors will need to pay more attention and conduct extensive due diligence on their purchases and not buy on a whim. Location will matter, as with the increase in traffic congestion, renters will be paying more attention to commute time, whether local or the overseas short-term renter. Floor plans and amenities such as swimming pool, standby generators etc, will also factor as differentiators as renters will be seeking to get the most value for the spend.”

Another option is to invest where there is not a great deal of supply -- that is, commercial real estate. Taylor says, “Given the increase in residential inventory it may suit investors to shift their purchases to the commercial sector which has high demand but continued lower supply of inventory. Office/Warehouse complexes would be target acquisitions. In fact, recognising this opportunity, some traditional residential developers are now including commercial complexes in their development pipeline.”

However, the supply in the real estate market has made the lending industry and the technology industry more competitive.

Dino Hinds, director of MicroFinancing Solutions notes, “The market is currently highly liquid and interest rates are the lowest they have been in close to 30 years and trending lower. What this means for anyone looking to access credit is that you will have the power to negotiate. It is therefore important that before you sign on that dotted line you have full information. What are other institutions offering, can certain fees be waived, and what other sweeteners such as cashback etc can be added to your transaction? Customers must build relationships with their bankers, and I would extend this to say they should have relationships with at least three banks at any given time. As the Lending Tree ad says, 'When banks compete you win'.”

And for those seeking to make a career shift to the real estate market, UWI researcher Dr Carolyn Hayle notes that technology is partnering with real estate more and more.

“So, we are looking at software design, development, analysis and management for the real estate industry. It assumes that you have some basic understanding of information technology, which everyone in high school and those who have been pursuing tertiary education are expected to have. Based on my knowledge of the education system, most students/graduates have it. Under real estate software design, I have found some interesting careers:

Sales: This software helps real estate agents sell property. It organises listings, client base and automates sales processes.

Leasing: Like the sales software, this one organises contracts, listings, lawyers and other supply chain players involved in a lease.

Property management tracks payments and expenses, and organises the various players required to maintain and service a property.

Marketing: This software will allow you to design and run a full marketing campaign.

Security: This software allows you to ensure that your data is safe and secure as you perform the above and other tasks.

Hayle notes, “All the areas above would suit people versed in information technology application, software design engineers, software developers, marketing specialists, administrators and of course, people who understand real estate who can help the designers and developers to understand the real estate eco-system and processes. These careers call for certification and qualification, depending on the level and point of entry. Most institutions in Jamaica offer several of these.

There are also those who would have degrees in geographic information systems who would be employed in land management and spatial mapping of various development projects. This requires at a minimum a bachelor's degree.”




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