The virtual reality industry sits poised on the brink of exponential growth. And the real estate sector stands right behind it, ready to be yanked into a new era of globalism.
Entertainment data aggregator SuperData forecasts that virtual reality (VR) will grow from a $3.78 billion industry in 2016 to a $40.4 billion industry by 2020. Hardly the distant future.
If you’re a serial lamenter of globalization, you probably won’t like where VR is about to take the world of real estate investing.
How Will Virtual Reality Change the Real Estate Industry?
It’s no difficult leap to imagine throwing on your VR goggles and “walking” through a 3D-mapped home. But beyond lifelike high-res, the experience will be truly interactive. You could open kitchen cabinets, open and close closet doors. You could see what the natural light looks like at different times of day, at different times of the year.
If that sounds like science fiction, think again. It’s already happening: Consider Google’s Tango project, which uses smartphones to create detailed maps of interior spaces. Google has been investing massive amounts of money in virtual reality, a logical next step for Google-owned Youtube and more relevantly, their external Street View and internal Tango projects.
And VR doesn’t stop with a property’s current condition. Companies like Virtual Walkthrough let users modify the space to suit their own tastes. Want to see what the living room looks like painted with “lilac cream” instead of flat white? No problem. Or maybe with a black leather sectional in that corner? Go ahead, superimpose furniture to see what looks good in the space.
There are shortcomings, of course. You can’t smell mold through a set of VR goggles. You can’t feel the texture of the woodwork or the plushness of the carpet. And who’s to say the property hasn’t sprung a leak since it was scanned?
But physically traveling to visit each individual property has its own shortcomings.
“The Easier to See You With, My Dear”
Within 5-10 years, buyers will have access to this lifelike sense of walking through properties on the other side of the world. They won’t even have to leave their living room (or their real estate agent’s office).
That means that it will be easier than ever before for buyers to confidently buy real estate far from home.
For investors, it’s an exciting prospect. They can forget the limitations of having to physically visit a property and invest anywhere in the country.
Or anywhere in the world.
In fact, a recent Redfin study shows buyers already moving toward more sight-unseen transactions. The study found that a full 21% of buyers since late 2013 had not physically seen the property. On the high end, that figure skewed even higher: Over half (53%) of buyers of $750,000+ homes did not visit before buying.
Globalization, Hedging & Luxury Homes
Globalization has been slower to affect real estate than other sectors of the world economy, but has still plodded forward. While exact figures are difficult to come by since many foreign buyers use shell corporations, case studies offer some fascinating insights.
Consider Vancouver. Despite a median income similar to Reno or Nashville, it sees average home prices approaching $1M. While that might shout “bubble” to some, others argue the cause is actually foreign investment.
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A full half of luxury homes in Vancouver over the last few years have sold to foreigners. Largely from China and other developing nations, these investors see both diversity and a safe haven away from unpredictable economic and political environments in their home countries.
Nor is Vancouver alone. A study by two Oxford economists found a strong correlation between London luxury home prices and turmoil in Southern and Eastern Europe. In fact, many Brits were outraged to learn that a whopping 69% of luxury homes in London sold to non-British buyers.
Here in the United States, Middle Eastern oil oligarchs increasingly pour money into U.S. real estate, particularly in high-profile cities like New York. Miami’s real estate market has been flooded by illicit money from South American drug cartels and corrupt politicians.
There are only so many countries in the world as stable and transparent as the United States, U.K., and Canada. As the foreign rich seek to hedge against volatility at home, they will keep looking to Western democracies.
The Shift Toward Middle-Class Homes
Foreign wealth flooding into luxury neighborhoods comes with its own pros and cons. Home prices in these cities rise, which is good for existing homeowners and city tax coffers. But first-time buyers and investors in Vancouver are having a tough time finding affordable homes, and higher home prices means fewer landlords willing to rent for anything approaching “cheap.”
There’s another risk, though. With so many wealthy foreigners buying up homes they won’t actually use much, what happens when only a quarter of homes are inhabited in a neighborhood? This so-called “zombie neighborhood” effect has actually happened in the Coal Harbor neighborhood in Vancouver.
These challenges spiral when global demand starts seeping into middle-class housing. As technology such as virtual reality makes it easier than ever to buy real estate anywhere in the world, foreign investment will move beyond the lofty premier districts of New York, London, and Vancouver.
It’s already happening: The average home price among foreign buyers fell nearly 5% in the last year. At the same time, the total number of homes purchased by foreigners rose 3%.
While there are plenty of variables (e.g. the strong dollar) at play here, it seems inevitable that investing in foreign real estate will become more accessible as technology improves.
And the World Gets Smaller
Right now, it’s still largely the rich in developing nations who buy foreign real estate. But as the world becomes a smaller place through technology like virtual reality tours, everyday folks from around the world will have easier access to buy real estate anywhere.
Think back just one generation ago. It was far, far more difficult to scout potential investment properties than it is today, without online listings, instant access to neighborhood statistics, and other Internet-based tools. And if you did find the perfect property, arranging settlement was harder due to more expensive long-distance calling. Shifting funds instantly to anywhere in the world is easier today, as is instant electronic communication. Even finding a good real estate agent or contractor long-distance is much easier in today’s world.
Among individual real estate investors, only the best-funded could really manage it. Today, it’s not uncommon for mom-and-pop real estate investors to buy properties out of state.
How much easier will it be in five years, with high-res, 3D virtual reality tours available for prospective properties across the world?
Whether globalization is a “good” thing or a “bad” thing is a question for eighth graders to debate in social studies. The rest of us should simply do our best to evolve and adapt to the changing times and understand new tools as they hit the market.
Are you ready for long-distance real estate investing? How would your business be affected if it were easier to invest over distances? And if you faced more competition in your home town from distant investors?
Let me know your thoughts with a comment!