Impacts of COVID19 Pandemic on the Stakeholders of Real Estate in China

IMPACTS OF COVID19 PANDEMIC ON THE STAKEHOLDERS OF REAL ESTATE IN CHINA

Introduction

Real estate is one of the industries that has grown tremendously over the last years. The sector is characteristic of a high injection of capital and is dependent on the prevailing economic environment. The levels of the incomes in a country determines the proliferation of real estate, hence a critical factor in establishing how fast the economy is growing. In China, real estate is the second largest sector since the economy was opened up in the year 1978 (Liu et al. 2019).  Apart from the local investing in the country, there was a tremendous boost in the economy through foreign direct investment, which amplified the living standards of the locals.

However, the real estate industry has currently been underperforming due to the direct control by the government. Liao (2019) indicated that the real estate industry had portrayed weak and fatigued tendencies since the year 2015, due to the readjustment by the government. The state has been firm in dictating what should be done in the market, with a significant concern being on the prices of land and properties. As a consequence, the freedom to negotiate and bring in cheaper and innovative approaches to the real estate industry has been curtailed by impeding precepts. Furthermore, Yuan (2019) elucidated that the real estate industry has recently soared in China; a phenomenon contributed to the ability to work with liability. Several investors have injected huge capital, financed by local banks, to buy properties and build commercial and residential houses in the state, thus turning to be a lucrative business for the entrepreneurs. The study reveals that companies investing in the real estate industry rarely perceive the future risks, and structure of liability, which exposes them to risk of failure, in the instance of uncertainties.

Problem statement

The impact of Covid19 is a new issue to be experienced in the real estate industry. Being a health crisis, it has affected the incomes generated from the real estate, as the directives to close the businesses and stay at home has siphoned the salaries of the population. Although a few researchers such as Stephany et al. (2020) have attempted to study the economic effects of covid19, there is no substantial data to support its implication on the stakeholders of the real estate industry, hence the choice to perform the present study.

Research questions

  1. What challenges do real estate stakeholders in China face amidst covid19?
  2. Which measures are stakeholders in the real estate industry, taking to cushion themselves from the current health pandemic?
  3. What strategies can the players in the real estate industry use to jumpstart performance after Covid19?

Aim of the study

This study aims to establish the effects of Covid19 on the stakeholders of the real estate industry. This will be achieved through the review of the literature and interviewing the respondents sampled from the real estate industry. The assessment will be aimed at finding the correlation of the current health crisis regarding the financial impact either at the individual or business level.

Significance of the research

The present study is practical, especially at the time when the companies in real estate industries are forging ways to emerge after the Covid19. The study will elucidate the areas that the disease has poked holes and provide a guideline on how to structure policies in the real estate industry. The study will contribute to the research field by establishing the challenges being experienced by the real estate industry due to the health crisis, which is unique to the newer generations of startups.

Literature review

The effects caused by the current health pandemic are widely death across the economy in China. Since its start in the year 2019, businesses and individuals have suffered financially, a situation which not addressed could deprive the population of their original lifestyle. According to Borowy (2008), an economic depression caused by the health crisis is one of the significant challenges to manage in any county. This is because a health problem affects the wellbeing of the productive part of the economy, hence muting the vibrancy of the economy. As a consequence, the government loses the revenues (Fernandes 2020), and the population finds it difficult to meet their basic needs. The assertion made by Borowy (2008) is supported by Ozili and Arun (2020). Their study affirmed that an ailing population is a burden to the government since the state uses many resources on health care. The funds that could have been used for infrastructural development are diverted to hospitals and the hiring of medical experts. Consequently, the trading activities lessens, and incomes reduce, resulting in a decline in economic development.

A study conducted by Ramelli and Wagner (2020) assessed the impact of Covid19 on small stakeholders in Wuhan China. The study showed that most of them reported being unable to resume work after the end of the pandemic. Equally, they said that they lacked mitigation measures, and feared reduced market demand, due to lack of revenues in the business. As such, the owner of properties such as business houses faces a rough period of delayed payments, thus cutting their income. In contrast, Lu et al. (2020) argue that the new period is appropriate for the real estate stakeholders in China to remodify their business. The author is of the idea that the new pandemic has acted as a disruption, which can trigger innovation and creativity in the model of operation. For example, the stakeholders can come up with policies that cater to the unforeseen uncertainties such as health crises, which for long has been ignored in the list of risks.

The major stakeholders in the real estate industry in China are working towards reviving the economy, despite the low revenue collected from the same. To cushion the players, the government has set aside a particular amount of funds to jumpstart the industry after the pandemic. The approach is intended at insulating the clients and owners (Sachs and Group 2020) from the massive adverse effects. In such a case, reduction of tax rates for land and rental is perceived as an appropriate strategy to ensure that all people are protected.  In the same vein, Sedlacek and Sterk (2020) argue that reduction of tax, and injecting more funds into the real industry would protect the investors, as a way to motivate them to continue in the real estate business. Despite this, more strategic planning is required to enhance return to normalcy of the real estate industry in China.

Despite the proliferation of the real estate industry in China, the year 2020 has been challenging. The current health crisis of Covid19 has disrupted the social lives and the normalcy that existed before in the economy. The contagion struck the whole world, at a time where no one was prepared, and industries rarely have had such a significant shock in the recent past. The implication of this health crisis is anticipated to cause both direct and indirect adverse effects on the real estate industry. In response to Nicola et al. (2020), the school and businesses are closed, and the population forced to spend much of their time indoors. This population was the largest client base of the real estate industry, especially in the form of rents and accommodation. A once vibrant real estate industry has been reduced to near zero, a situation that would take long before returning to the initial levels. The banks would, for a while, cease to finance the real estate companies, hence lowering their performance in the market.

Theoretical Framework.

Migration from a stressed economic situation, which is contributed to by the Covid19, would require a concerted effort among different parties. Stakeholders’ theory stresses the importance of the relationship between the customer, employees, suppliers, investors, governments, communities, and others (Phillips 2003), who have a stake in an organization. This theory argues that the management of any business should create value for all stakeholders, not just focusing on shareholders alone. While the real estate industry is being faced with challenges of reduced revenue, an intensive effort is required to override the current uncertain time. All the stakeholders should come together to work strategies that would ensure that real estate companies continue with the business even after the pandemic is over. Stakeholder’s theory emphasizes on a maximum utilization of value of each stakeholder. In the same vein, value chain theory analyzes the activities that a business should engage in to produce quality products (Maxham et al. 2008). This theory is useful in helping the real estate stakeholders to regain their presence in the market, by improving the efficiency, to provide value and with minimum cost (Al-Mudimigh et al. 2004). To achieve this, therefore, five components are required, which include: inbound logistics, operations, outbound logistics, marketing and sales, and service.

Methodology

Research Approach

Research is the process of studying the information in-depth, to answer the research question set out in the study. The process involves the collection of data, from disparate sources, analyzing it, and interpreting the same to inform the targeted audience (Crabtree and Miller 1992). In the present study, an inductive approach is appropriate, since it involves studying a phenomenon from specific, moving towards a general idea. An inductive method assumes that a researcher has little knowledge in regards to the topic, hence prompting a more comprehensive consultation of information. In the current study, the focus will be to explore the effects of Covid19 on stakeholders of the real estate industry.

Research philosophy

Research philosophy is the approach that is believed to be ideal in collecting and analyzing the data. Qualitative and quantitative methods of study adopt different philosophies since the type of data differs. In the current study, interpretivism will be approved, which propounds that reality can be accessed through instruments and conventional approaches (Dougherty et al. 2019). The main reason for choosing this type of philosophy is because it aims at the meaning of qualitative data. The researcher will interpret data collected from secondary sources, and interviews conducted to the participants. The method is useful in understanding more in regards to the chosen topic.

Research method

Research using the inductive approach is usually qualitative. According to Tracy (2019), choosing the right method of study is dependent on the study. The primary choice for the current study is the qualitative method, as it will infer from books, peer-reviewed journals, and interviews. The intention is to record information the way people see it, hence increasing the reliability of the data. One of the advantages of the qualitative method is that it helps the researcher to get near reality. Secondary sources record information from the primary sources, which improves the reliability of the data. In that regard, the author will assume the exploratory research design. According to Leech and Onwuegbuzie (2009), the exploratory design is broad and effective in instances where the researcher wants to dig deeper into the topic. However, the adopted qualitative method is subject to biases, as there is no test of variables (Dickson-Swift et al. 2007; Graneheim et al., .2017). Also, the mining of data through this method is time-consuming.

Research strategy and Data Analysis

The study will utilize data derived from secondary sources such as peer-reviewed journals, and telephone interview. For secondary data, the researcher will extract the information from notable databases such as JSTOR, Scopus, and Education Resources Information Center(ERIC). The author will read through the abstract to determine what to include or not. In the same vein, telephone interviews will be organized by first identifying the real estate companies to involve in the study. The participants will be informed of the day of conversation, to prepare them psychologically. The data will then be coded and analyzed in the form of themes since it is descriptive.

Ethical consideration

In this research, participants will be coerced into taking part in this study, and they were fully informed about the process, benefits, and risks complex in the research and will be asked to sign a consent form.  The research will be at a standard level that will not put participants at risk of harm, whether physically or psychologically, as a result of their involvement. Furthermore, the researcher guarantees confidentiality and will assure participants not to disclose any information about them to anyone, and they will remain anonymous throughout the research. It is essential to mention that the obtained information will not lead to any bias, and the researcher will use the data effectively and with sincerity.

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