Tag Archives: Defining demand in real estate

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?

Is location only driver in real estate?

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: In its fixation for ‘location, location & location’ the Indian developers have ignored the basic need of research in launching new projects.

Peninsula Land Celestia Space, Mumbai real estate, India real estate news, Record sale in Indian property, Track2Realty‘Location, Location & Location’ has been the tried and tested format of success in the Indian real estate. It has been the best calling card for the developers. Many even assumed that if the developer has got a piece of land in any of the highly desirable locations, that itself is enough to sell the project.

However, this market optimism led to the downfall of many of the developers. The slowdown just forced them to introspect as to why some other developer in the same market is selling successfully at higher price point while their project is heading nowhere.

The answer to this lies in the single word – research, or rather lack of it. Take the case of a builder who has abandoned housing project in one of the most desirable locations of South Delhi. The said developer had borrowed heavily to buy an 800-sq yard park-facing corner plot in West End for Rs 90 crore three years ago. He was forced to abandon the apartment project and put the plot on the block after failing to find takers.

Analysts point out say the same builder would have sold the apartments even at the drawing board stage had he read the pulse of the market right.

Anish Shah, Director, Amal Realtors, however, believes that in certain locations it is true that land competence itself is enough to sell. He cites the example of Mumbai where the biggest difficulty is to how to get the land. He therefore asserts that anyone claiming to have defined the demand and then launching a project in such locations won’t be true.

“On the outskirts that may sound good but otherwise in Mumbai any developer is ready to pick up any land. With that land then the project is planned keeping in mind what kind of demand will come, whether it will be residential or commercial or IT. But on the outskirts, MMR region or Thane or on the western side beyond Virar, you will have to see what sort of demand will come,” Shah.

Sandeep Ahuja, CEO, Richa Realty is candid on this to admit that the developers have been carried away with land competence. According to him, it has been happening like this for several decades and because of this the developers have landed to this kind of a situation. The developers have not focused much on the research. However, he believes here onwards this is not going to work.

“It may sound fine that in Mumbai you just buy land and make whatever, it will work but it is not going to work. In the same micro market of Mumbai one developer with better product is able to sell out more and reach out to far number of people than a developer who has not focused on the research. The developers have been ignoring it but I think now they won’t be able to ignore it,” says Ahuja.

Many of the developers continue to think that research on what kind of product you should offer is something that is different. But they feel in a developed city what comes first is to identify the land that is the key determinant.

Citing the case of Noida an analyst points out that demand and supply mismatch today is largely because the greed sets in to make the best of location advantage. He points out that  the sizes which are made available in Noida are really large. The buyer in that market is coming because he is not been able to afford anywhere else. In the new areas buyers don’t go out of choice and this is a global phenomenon. Someone goes to Noida because he is not being able to buy it in Gurgaon or Delhi.

The analyst maintains that had the developers in Noida been sizing it right with the help of research on buyers’ needs they would have been able to sell it far more. There is no denying that the developers’ view on land competence added with the perceived demand have got them carried away to launch thirty to forty storied apartments worth crore and that has added to the problem of demand & supply mismatch and inventory overhang.

By: Ravi Sinha