It is a nightmare for an overseas buyer willing to purchase property when a deal is lost due to payment being delayed for over a week as it is stuck in transaction approval waitlist by the bank. It might sound unrealistic but this is the predicament that real estate buyers all across the globe have to face and the sheer value of USD 8.9 trillion global property market highlights this issue.
As far as important issues are concerned, there is none more serious than financial disputes, the real estate market in 2023 suffered from USD 2.3 billion loss due to payment disputes alone. There is a lot that is going on beneath the surface.
Gambling with Foreign Exchange Rates
In one of the earlier instances during the Bitcoin frenzy, Bitcoin saw a 30% decrease within a single day, to put things in perspective currencies are prone too great fluctuations. An example of this would be the situation a Singapore based investor went through, while buying a USD 4 million worth property in London, lost USD 180,000 in a span of five days simply due to delay in payment clearance. Currency fluctuations affect cross border real estate deals as well, in fact, during the last year it cost an estimate of 3.8%.
With the huge span of 3-7 business days, having to wait for the payment to go through feels excessive. But it gets worse, turns out it is all just average. A more in-depth analysis of around 10,000 international real estate transactions conducted this year revealed these following statistics.
These stats include the following:
- Approximately 15% of total payments went well past 10 days
- Approximately 35% experienced at least one rejection
- Approximately 22% had to try again and again due to compliance issues restricted what they could do with their payments
With these factors in mind, a delay would cost sellers approximately $12,000 along with the standard transaction cost.
The Compliance Labyrinth
In the year of 2023, Companies dealing with real estate were dealing with record breaking compliance violations. these fines were not cheap but some good firms were willing to pay these. The average fine taken by a firm for being non compliant was $5,00,000 but this year in 2023, that took a sudden jump to around $7,50,000, with a firm located in Dubai being the highest sufferer, their non compliance for simple integration of funds into the purchase of an apartment ended poorly for them, which resulted in them paying a sum of $23,00,000.
Let’s look into the practical cost of sending assets over the borders:
- Transfer wire costs – $25 and goes up to $85 for one transaction
- Conversion on foreign exchange rates – from 1% and goes up to 4% of value during a transaction
- Fees charged by the intermediary bank – estimated between $15 and $50, for any intermediary banking services.
- Chasing payments costs (for payments that haven’t gone through) – range between $25 to $150 for consulting.
If you are looking to purchase a property worth $5 million, the payments you have to pay for the above services can be as much as $150,000, and in some places it might even go higher, this is equivalent to purchasing approximately buying a small apartment!
Glad Stories to Share
So consider the scenario of an awesome real estate boutique in Hong Kong that was losing out on a lot of deals because the payment was always delayed. After switching to a Collect&Pay payment platform:
- Their average transaction time was cut down from 96 hours to merely 6 hours
- They saved $1.2 million on transaction fees over a course of a year
- Client satisfaction scores remarkably increased from 72% to 94%
- They made 40% more international deals in the course of the first year
Now, modern payment platforms have unveiled many innovations that have assisted in making the above business goals reality.
- The service fees have been slashed down by almost 71% (rather than just 30%)
- In most scenarios, the processing time is reduced by almost 95%
- Automation halved compliance expenses by 60%
- Market rates can be locked for up to 48 hours.
Implications for Your Real Estate Venture
The global real estate market is not just substantial- it is growing at an unprecedented rate. Cross-border transactions now account for 28% of all real estate deals (up from 20% last year’s share), which translates into more than $2.9 trillion in total volume on an annual basis. But here’s the kicker: businesses that leverage modern payment solutions are expanding their international presence 3.2 times more than those clinging to traditional means.
Put it this way: in the current market, a payment system is no longer just a tool that moves money- it is either your strongest asset, or your biggest liability. With real estate prices in active markets such as New York City swinging by nearly 15% each year, possessing a payment solution that can secure and finalize deals fast and safe is no longer a luxury- it is a necessity, the difference between success and failure in the global real estate market.
It is important to note that if one inefficient payment can rob you of the perfect house or a great client then, making a choice for the right solution for payment (for example Collect&Pay) is crucial – it is not merely an issue of comfort, but rather active participation in the industry.