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Indian developers lack market depth

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: In the absence of analytics & research the Indian developers have failed to define demand in the right context. There is no scientific due diligence on their part and they lack risk free reputation, finds Track2Realty. 

Market Depth, Stock Market, Due Diligence in real estate, Defining demand in real estate, Research in property market, Data analytics in real estate, India real estate news, Indian realty news, Real estate news India, Indian property market news, Investment in property market, Track2RealtyIn finance, market depth is about quantity to be sold versus unit price. Mathematically, it is the size of an order needed to move the market price by a given amount. If the market is deep, a large order is needed to change the price.

Wikipedia defines that market depth is a property of the orders that are contained in the limit order book at a given time. It is the amount that will be traded for a limit order with a given price (if it is not limited by size), or the least favorable price that will be obtained by a market order with a given size (or a limit order that is limited by size and not price). Although a change in price may in turn attract subsequent orders, this is not included in market depth since it is not known.

In real estate, market dynamics is so more complex that all the marketing theories and economic rationale have already gone for the toss. The conventional financial definitions are often challenged by the imbalance of demand & supply. With real estate predominantly being a micro market business, each market has its own dynamics.

Demand-supply mismatch is something that has been debated enough in the real estate market. What actually defines the demand? Probably different developers have different answer to it but what can be vouchsafed is that what leads to this mismatch is often the lack of scientific research & reliable data and hence the projects are often conceptualised on developers’ gut feeling and perception.

Market depth of most of the Indian developers lacking in absence of scientific research & analytics

Demand & supply mismatch is a direct offshoot of lack of market depth

Real estate industry bodies never lobby for data driven eco system because not-so-transparent system suits majority of developers 

Today, when the piled up inventory is on the top of every developer’s mind the question is all the more relevant since any scientific approach to define demand may lead the sector to a seamless business cycle which, in turn, can goad the sector to best practices and also meet the housing shortage in the country.

There is no scientific methodology evolved in the Indian real state that could explain how to assess the demand in a given market. No wonder, all economic theories go for a toss when the perception borne out of peer pressure to launch in the same micro market finds that the catchment area is not attracting buyers for some inexplicable reasons.

Wikipedia defines real estate economics as the application of economic techniques to real estate markets. It tries to describe, explain, and predict patterns of prices, supply, and demand. The closely related field of housing economics is narrower in scope, concentrating on residential real estate markets, while the research of real estate trends focuses on the business and structural changes affecting the industry. Both draw on partial equilibrium analysis (demand and supply), urban economics, spatial economics, extensive research, surveys, and finance.

The main determinants of the demand for housing are demographic. But other factors, like income, price of housing, cost and availability of credit, consumer preferences, investor preferences, price of substitutes, and price of complements, all play a role. The core demographic variables are population size and population growth: the more people in the economy, the greater the demand for housing. But this is an over-simplification.

It is necessary to consider family size, the age composition of the family, the number of first and second children, net migration (immigration minus emigration), non-family household formation, number of double-family households, death rates, divorce rates, and marriages.

In housing economics, the elemental unit of analysis is not the individual, as it is in standard partial equilibrium models. Rather, it is households, which demand housing services: typically one household per house. The size and demographic composition of households is variable and not entirely exogenous. It is endogenous to the housing market in the sense that as the price of housing services increase, household size will tend also to increase.

By: Ravi Sinha

Next: How developers assess demand?

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