Time for homebuyers to define demand for realty projects
At a time when there is a mad rush to launch new projects in and around the airports across the cities of India, a developer in Bengaluru opted to go in the diametrically opposite direction. Prima facie, what appeared to be a case of finding a better or affordable land parcel in that given location of South-West Bengaluru had a strategy that very few adopt in the business of Indian real estate.
The strategy to define demand through scientific research. In this case, the demand in the market was assessed through a consumer psychograph study — what consumers want; what they need; where are the gaps; and how a new housing project could fill in that gap.
Most of the housing projects are launched in this part of the world based on peer pressure or gut feeling of the developer. Getting the consumer feedback before conceptualising a housing project and scouting for the land parcel for the same is not very common in India.
Research reports in the sector are very generic in nature and mostly rely on the empirical evidence of launches, absorption and price trends.
Need to bridge the gap
Hence, many of the developers with housing projects having sizable unsold units wonder what went wrong; why there are no buyers in the market as assumed. Sarveshaa SB, CMD of Bhadra Group, says that in a country where the reports of housing shortage contradict the reports of unsold inventory, it is time to make a strategic shift in the mindset. According to him, if the buyers are defining the demand and if they are asked beforehand as to what kind of project they are looking for and at what price point, the housing project will never face the sales logjam.
“From my experience, I can vouchsafe that even with a housing project facing slow sales, enquiries and footfalls are not always slower. What does it say? It clearly suggests there is a gap in what the homebuyers want and what is there in the market. It also adds up to the client acquisition cost of the developer, and squeezes the profit margins,” says Sarveshaa.
Abhishek Kapoor, Group CEO of Puravankara Limited, agrees that demand in real estate is driven by a combination of end-user requirements, economic conditions, and demographic shifts. Infrastructure development, supply, market dynamics, and commercial activities, too, play a key role.
In India, strong demand continues to come from end-users, especially for larger living spaces and properties offering a higher standard of living. The trend towards home ownership in critical urban areas and rising aspirations for premium housing reinforces the ongoing demand.
“In India’s diverse demographic landscape, balancing empirical data with on-the-ground market trends is crucial since data collection and analytics are more recent phenomena. We gather market insights from data analytics firms and property consultants, which help us understand supply and absorption trends, current prices, and appreciation potential. In addition to this data, we conduct survey with channel partners operating in specific micro-markets to gain deeper insights into supply gaps and consumer demand. Combining this with our expertise and knowledge and the performance of our past projects, we can assess demand more accurately in heterogeneous markets. Going forward, as data quality improves, demand and supply assessment will only get better,” says Kapoor.
Vimal Nadar, Head of Research at Colliers India believes demand in real estate refers to the desire and ability of consumers, be it end-users or investors to purchase or lease properties in a given market. For instance, residential real estate demand is indicated by the number of housing units sold in a particular market within a particular period. Unit launches indicate developer confidence in the housing market and is typically reflective of anticipated housing sales in the near mid-term.
“In commercial real estate, demand is primarily assessed in terms of gross area leased in multi-tenanted office buildings. Outright sale volume also reflects investor or end-user confidence in the long-term usage of commercial developments,” says Nadar.
Demand assessment is key
The fact remains that the majority of unsold housing projects across the cities of India clearly suggest that these were launched without any scientific demand assessment of the home buyers. Such projects face slow sales, higher client acquisition cost, closer to delivery sales adding interest cost of the project, and at lower price point than the competing projects in the same micro market.
In contrast, the developers who are able to define demand with realistic demand benchmarking are the ones who command a premium with lower client acquisition cost and higher profit margins. These projects also add to the brand recall and goodwill of the developers.
However, scientific study of consumer psychograph and demand assessment is a relatively new phenomenon in the business of Indian real estate. Only a handful of developers are understanding the benefit of such a process-driven approach. There is also a dearth of professional research agencies in the sector. Most of the information in the name of research is just the empirical evidence of launches and launch-to-sales ratio, supply and absorption, and price trend.
The proptech industry that was supposed to bring a game changer approach to the sector has thus far only catered to online demand and lead generation. And hence, defining demand has been a puzzle in the sector. However, some early mover developers opting for consumer psychograph study hence have an edge.
The writer is CEO, Track2Realty