What should real estate businesses do during a recession cycle?

DNHN - When the real estate sector enters a recession cycle, businesses in the industry face significant challenges.

Recession is often characterized by a sharp decline in demand, falling property values, and weakened market liquidity. This presents numerous difficulties but also provides opportunities for businesses to restructure and adjust their strategies.

During this period, the demand for buying, selling, and renting real estate drops sharply. Buyers and investors tend to be more cautious, leading to a decline in home sales and related real estate transactions.

At the same time, businesses will face challenges in accessing funding sources due to high interest rates and scarce capital in the financial market. This forces many enterprises to confront tight financial situations, making it difficult to sustain operations. Furthermore, asset values drop due to low demand, posing significant risks for investors and property owners. This condition increases the risk of default for ongoing projects, especially large-scale projects or those with low liquidity.

To cope with this situation, real estate companies need to adopt flexible and prudent response strategies. One effective strategy is to restructure the investment portfolio. Businesses can consider eliminating underperforming or illiquid assets and focusing on projects that are likely to yield higher value in the future. Additionally, cost-cutting is a crucial step. Optimizing operational and management expenses helps reduce financial pressure on the business. Postponing non-essential projects or renegotiating contracts with contractors are also ways to save resources.

Another direction is to focus on niche markets. During a recession, demand for luxury real estate may decline, but the segment of affordable housing or small commercial properties may still maintain stability. Therefore, businesses can redirect their business strategies towards these segments to seek competitive advantages. Moreover, developing flexible business models is also a useful solution. For example, companies can offer short-term rental services or expand into value-added real estate services such as asset management or financial consulting to generate additional income.

In the context of financial difficulties, renegotiating loans and seeking favorable financing packages from banks are also necessary strategies to help companies maintain operations and avoid bankruptcy risks. Some businesses may also consider diversifying their business portfolios, such as expanding into related fields like asset management, industrial real estate, or developing digital services related to real estate, such as proptech applications.

Moreover, investing in technology and data will help companies optimize business processes and manage risks more effectively. Advanced technologies such as proptech and big data can support businesses in predicting market trends, thereby making precise and effective investment decisions.

Finally, during a recession, strengthening customer relations becomes particularly important. Businesses need to maintain and expand relationships with customers by providing high-quality services and building trust. This not only helps retain customers but also creates new business opportunities.

Economic experts often point out that recession in the real estate sector is an unavoidable part of the economic cycle. Macroeconomic factors, such as inflation, low GDP growth, high interest rates, and tightening fiscal policies, all contribute to reducing purchasing power and investment in real estate. Meanwhile, factors such as oversupply and asset surplus in certain segments also drive the recession.

Companies with unsustainable capital sources or ineffective management face a higher risk of bankruptcy. On the other hand, companies with long-term strategies and solid financial structures can take advantage of the recession to buy cheap assets and restructure their investment portfolios.

Many experts suggest that real estate companies need to be flexible and creative during this period. Focusing on niche market segments, where demand remains stable, such as affordable housing or industrial real estate, is seen as a smart strategy. Additionally, investing in technology, especially digital solutions like proptech, helps increase management efficiency and make better business decisions.

Adjusting interest rates, providing financial rescue packages, or supporting small and medium enterprises can help alleviate short-term pressure. At the same time, improving the legal system and market transparency are also long-term factors that need to be emphasized to prevent similar risks in the future.

Hoang Gia - Duy Ky