Millennials: the ‘X’ factor in today’s real estate market
I wouldn’t be too much of a misrepresentation to say that the real estate industry has long been a little perplexed with preferences of the millennial generation, when it came to housing. Millennials or Generation Y have traditionally been known to favour renting over home ownership, with a view to prioritizing financial and career flexibility. However, the year 2020 has the potential to mark a change in this relationship. The first wave of millennials will turn 40 this year, an age conventionally associated with settling down in life and investing in property. In fact, multiple recent studies are substantiating this presumption, through research results that establish that a growing number of millennials are expressing their interest in owning a home. In addition to this demographic entering a new stage in their lives, many millennials are also expressing a favourable view of real estate, as an attractive asset class to invest in.
Nevertheless, as most real estate professionals would testify, millennials can be enigmatic in terms of preferences and expectations. This demographic were among the first to avail digital services to navigate the homebuying process, at the expense of brick-and-mortar brokers. On the other hand, as a generation that values time above everything, some millennials also prefer brokers, to avoid time-consuming online searching.
With millennials likely to be the single largest age-group of buyers, over the next decade or more, the real estate industry needs to proactively adapt to best serve this new generation of customers. To put things into perspective, 60% of the current Middle East and North Africa (MENA) population is below the age of 30.
The changing equations
Millennials came of age during the recession of 2008. It’s likely that the ensuing global financial crisis injected a degree of skepticism towards capital intensive investments in them. At the same time, changing social mores led to millennials being averse to keeping all their eggs in one basket, which led to the rise of the gig economy, owing to their appetite for flexibility and mobility. In recent years the per-capita income in several leading economies has witnessed a significant rise and millennials, who constitute 50% of the workforce, are now earning a significantly higher income than preceding generations. This, in turn, has resulted in repayment of student debts and an increase in disposable income, within a substantial slice of this demographic.
This complex set of conditions is reflected in a survey conducted by the Bank of America (1). According to the results of this research, 72 percent of millennials are now actively prioritizing home ownership over many other major life events, such as getting married and having children. In fact, the US census bureau has revealed that people aged 37 and younger currently make up the largest share of homebuyers in the country. A similar equation applies in the UAE, except the conditions are further complemented by rising affordability across the region. The real estate market in the UAE currently boasts decade-high affordability, which is expected to result in a huge tailwind for millennials’ home buying aspirations.
Millennial impact on real estate
While there is no denying that millennials present a massive untapped potential, unlocking the value this segment represents is not without challenges. Regardless of the asset being commercial or residential, the smart money is on tailoring developments in line with the expectations of this rising customer pool. Studies indicate that millennials will constitute at least 75% of the workforce by 2025, and the majority of them prefer smart, experience-driven workplaces. Even retail stores are undergoing revolutionary changes, to meet user expectations by incorporating the latest technologies, to drive personalized and customized experiences. Facility managers and building owners too are adapting their approach, in line with this new dynamic.
Millennials tend to be eco-conscious and at the same time have a proclivity for real-time, on-demand services. Their comfort with using hand-held digital devices is another key factor that businesses now have to account for. Under the circumstances, technology has emerged as a solution to consolidate services and delivery that aligns with millennial expectations, in a single value chain and without undermining business outcomes.
Unlocking the potential
As things stand, many related changes in strategy and approach are underway, across the real estate landscape, in response to these emerging opportunities. However, high down payments and unappealing mortgage rates continue to hinder millennials’ home-buying aspirations. The UAE, for its part, has adopted several innovative strategies to create favourable circumstances for this segment. The government’s push for affordable housing and flexible payment plans is centered on the UAE’s young population, while the ratification of rent-to-own and other unprecedented schemes is providing an additional set of incentives. Strategic partnerships between the public and private sectors have led to millennial-friendly initiatives such as Manzili, which enables buyers to explore the feasibility of home buying, based on savings and earnings.
Millennials currently account for 36% of the UAE’s total population. Their numbers are particularly high in Dubai, where the population is growing at a rate of 10.7%. At the same time, Dubai’s real estate market is currently at its most affordable in years. With all these positives lining up, chances are that the next few years will witness a surge in home buying, driven by a new class of home buyers and the measures that have been put in place to facilitate them.