The shoe is firmly on the other foot. After years of enjoying the upper hand over hapless buyers, real estate developers are having to contend with customers who will vote with their feet when faced with opaque communication and coercive tactics that were the norm so far. Emboldened by supportive regulation and informed by maturing ‘neutral’ distribution, home buyers have become more discerning. It is time real estate developers read the tea leaves and adapt to the new normal.
In his recent book, The CEO Factory – Management Lessons from Hindustan Unilever, Sudhir Sitapati argues that in the ultimate analysis Product is the most enduring advantage among the 4 Ps of marketing. If you don’t get the product right, you are doomed to failure. With the right product, if you are patient, the results will follow. Getting the other elements of the marketing mix to work in tandem, viz. pricing, distribution and promotion, can help achieve those results sooner rather than later. Yet, real estate developers often rely on high-decibel advertising, promotions and pricing schemes to paper over lazily conceived products. With moderating price growth and abundant low-priced rental stock there is no forcing function rushing buyers to conclude their home purchase if they are not fully convinced that the product meets their needs.
First-time buyers have been in the market for well over a year and will readily defer their purchase by a few more quarters rather than compromise. Those looking to upgrade to a better home have the cushion of their existing home to lean back on. More time additionally helps these families shore up savings and stretch for their dream house. Developers would do well to heed recent sales trends that clearly signal the primacy of product over price. Few, however, have had the foresight to build the capability to unearth consumer insights that will inform a sharp product brief. They rely almost exclusively on the inspiration of the architects they appoint. But, in the absence of a cogent brief, even the best architects will miss the mark.
Housing is a category historically plagued by intransparent pricing. The Real Estate Regulation Act (RERA) has come to the aid of buyers by establishing norms around definition and disclosure of carpet area, which is the basis of pricing. Even so, a typical price sheet includes many rows with indecipherable descriptors that leave customers nonplussed. Recent efforts from progressive developers communicating an ‘all-in’ price should be lauded. But even these appear whimsical and insincere. The same developer might embrace an all-in price when it suits and abandon it when it seeks to create different optics. One of the legitimate challenges that developers face is the vagaries of changes in applicable taxes and statutory levies. Given the long cycle of development these could have a material impact on the eventual cost and price. The government and planning authorities need to ensure predictability on these costs, and in turn, mandate clearer price communication norms that engender trust rather than erode it.
Even though housing is perhaps the most high-involvement and therefore deeply researched purchase category for a family, developers have often borrowed from the impulse-buying playbook to drive sales. Flash sales, artificial inventory scarcity, fear-of-missing-out are all well-worn tactics in the industry. Surprisingly, these have even worked from time to time. But buyers are becoming increasingly wary of these devices. And developers too are realising that a buyer who is feeling trapped is more deleterious to reputation than beneficial to economics. While the era of free-returns is still some distance away in real estate, it is not inconceivable that those who embrace it in spirit will end up gaining more than they will lose.
A clear sign of a maturing industry is the shift in balance of power between developers and distributors. Whereas at one time, real estate brokers were merely selling agents of the developer, the contemporary channel partner is increasingly emerging as a navigator for her customers. Within the trade, there is the emergence of the equivalent of modern retail – large institutional channel partners enabled by technology and professional management – coexisting with the traditional trade of the sole-proprietor broker. Mandatory disclosures under RERA, digital outreach to customers, comparison-shopping portals, and social media have combined to arm the distributor and customer with far more information than they had in the past. And the developers voice is therefore not the only voice being heard in the din of the marketplace. Recognising and adapting to this new reality, developers are setting up channel management teams and activation programs drawing on best practices from other consumer goods and services sectors.
For long, housing came with the cautionary rider of caveat emptor – buyer beware. A confluence of changes over recent years – actions by buyers, regulators, distributors and developers – has created the perfect storm that will upend the old order. Today, it is caveat venditor – it is the seller who must be on high alert or he will be caught out in a fast-changing competitive field.Arvind Subramanian is Chief Executive at Mahindra Happinest. The views are personal.