Whether it be challenging financial and economic times, like today, or the ‘best of times’ in real estate, predicting potential trends and marketplace returns is filled with difficulty. Risk is always inherent in real estate investments. The key is trying to keep expectations in line with current market conditions, and to make decisions based on understandable, relevant data. Some of this data can be gleaned from sources outside the traditional real estate investing industries.
Recent surveys of key business leaders, government officials and investors may shed a light on expectations in these troubled economic waters. According to a survey by the IBM Institute for Business Value, 90 percent of financial markets executives and government officials believe the returns of the past are over. The study predicts significant consolidation in segments wrought with over-capacity such as investment banking, asset management, and wealth management, and enhanced regulation and transparency to eliminate opacity.
“The three trends – towards specialization, client orientation and improved efficiency – are triggering a restructuring wave on a greater scale then ever before, eroding margins and forcing all firms to reconsider their value propositions and their core business models,” said Shanker Ramamurthy, Global Managing Partner for Banking & Financial Markets at IBM Global Business Services. “The new industry will not only lack some of the great brand names of the past, but will also lack many of its past characteristics – from excessive risk taking, opacity and leverage, to massively high returns.”
Wow. Now that’s good news for an industry that is struggling to secure loans and credit for big-ticket purchases and investments. Consolidation and transparency might just open the doors to that credit and circulate more funds into the system. That’s good news for sure.
There’s more that can be learned from our friends in the financial and governmental industries. Respondents to the IBM survey said that improved client service and efficiency would be critical for competitive survival in a new lower-margin financial order, a finding consistent with other more mature industries. In the future, firms will need ‘smarter’ systems that can continuously assess their risks and returns across each line of business and adjust their business mix accordingly. At the same time these systems will also enable firms to refine client service through improved understand of profitability by business line and product as well as by individual client.
What do the survey responses mean for you as a real estate investor? They tell me that you must demand accountability, enhanced service and a due diligence process that looks out for your best interests, not the firm’s, brokerage’s, corporation’s, et al. If success for the financial industry calls for the need to eliminate complexity and excess and move to a more transparent, sustainable market, rest assured it is the best interests of the real estate industry to deliver those same features to you as a real estate investor.
Expectations. As you can see, expectations cycle like markets. In today’s conditions, you can realize a gain not only in returns but in service and quality of data, a transparency that is good for all parties involved.