Tuesday, 15 July 2008

A fast reaction

The real estate crisis was upon us faster and with more strength than anyone could have imagined. With each new article I write, I’m surprised by the amount of new negative data. The excess stock of built property and the financial crisis are damaging our industry, with sales falling dramatically in certain areas.

The result: companies in danger of bankruptcy, an increase in unemployment, a loss of consumer confidence, a fall in consumption.
The real estate companies´ swift reaction has pleasantly surprised me. Instead of timidly waiting for the problems to pass and moderately lowering prices, many have reduced them drastically (up to 30% in some cases!). They are aware of the fact that the sooner they sell excess stock, the quicker we will overcome this crisis.
Logically, the real beneficiary will be the buyer.

It´s a common idea among economists: the faster the fall towards the crisis, the shorter in time its consequences will be. The fall in sales has been so abrupt, that real estate companies have decided to immediately drastically lower their prices. No negotiations, just the lowest price possible (even with losses) in order to sell the properties as soon as possible. This attitude is proof of an understanding of the situation that goes beyond complaining about the consequences of the crisis or the fall in demand of European buyers.

During a few months there were still a lot of offers trying to hide the fact that prices were falling: e.g. gift cheques, e.g. mortgage paid for the first year, to name just a couple.
Fortunately, these measures were soon replaced by a drastic reduction in prices. According to classic economics, that is one of the best ways for supply and demand to come closer to each other.
And when that occurs, we will have ended the crisis, at least in real estate.