Moneycontrol PRO

What Mumbai real estate developers can learn from Steve Jobs

Unless frequent and credible market research is done to understand the customer better, the same mistakes will get repeated. Flattering surveys only provide hollow hope to the industry and entertainment to the rest.

August 17, 2020 / 01:06 PM IST

Most entrepreneurs tend to imitate the mantras of the successful. There is perhaps no other entrepreneur who is as followed for his vision and practices as the late former Apple boss Steve Jobs. While I am an unabashed admirer of the man, it’s hard to deny that his one philosophy has been widely abused across industries: “People don't know what they want until you show it to them. That's why I never rely on market research. Our task is to read things that are not yet on the page.”

If there is one sector that has literally taken the advice of not relying on market research – it is the real estate industry in Mumbai.

There are those that will point out the regular surveys done by consulting firms as evidence to the contrary. Unfortunately, they are hardly considered credible. No one I know takes them too seriously. It’s not hard to fathom the reason.

The findings are almost the same every time. It typically says 1) High share of respondents prefer to buy a home vs renting 2) High share of prospects are contemplating a purchase in the next 3/6 months 3) High share of the audience prefers a 2BHK at a particular price point (normally it is close to the prevailing price) 4) Real estate is considered the best asset class. And so on. Loosely put – the findings are the ones that the ecosystem wishes to hear than what it really is. How else does one explain surveys consistently pointing to massive demand and the industry yet pleading for a one-time restructuring at the same time?

Close

It is easy to bash developers for the mess they are facing. They are certainly to be blamed – but it will be unwise to hold only them responsible. The truth is that an entire ecosystem has actually encouraged weak planning with bizarre feasibility studies.  This ecosystem primarily comprises developers, consultants, brokers and lenders.

Today as the cookie has crumbled there is widespread recognition, even from developers, that an incredible distortion in the market was created. Underwriting of projects happened at unrealistic levels and lending happened with a recklessness that is unparalleled. Projects that didn’t stand a chance to succeed got into the game creating an exorbitant supply. The excess supply by players that had a patchy track record was never going to be absorbed meaningfully. But these projects invariably played the role of a spoiler for projects that may have survived otherwise.

Why did all of this happen? The common answer is that the entire chain is compromised with an incentive structure that isn’t reliant on the success of a project. That may or may not be entirely true. For me the overarching reason is simple – stakeholders do not spend enough time understanding the size of their target customer base as well as what that customer wants.

As I pointed out in my last column - at its most affordable price point the customer base for first-time homebuyers in Mumbai is less than 50,000 households. This when the existing unsold inventory in the city is at 110,000 units with most at a price point far higher than affordable. Lack of demand from first-time buyers has had a domino impact on replacement demand thereby disrupting the entire chain keeping inventory at elevated levels.

There are several questions for this pile-up of inventory:

Is the market wrong? Is the pricing wrong? Is it an issue of a ready product vs under-construction units? Is it about a branded developer vs an unbranded developer? Is it about an excess supply in certain pockets that is driving the overall number high? Is it about a flawed design or configuration?

I have addressed some of these questions in my previous columns based on data and the numerous prospective homebuyers who reach out to me – but here is the problem: No one really knows the contribution of each factor to the mess that the industry is battling.

Unless frequent and credible market research is not done to understand the customer better, the same mistakes will get repeated. Flattering surveys only provide hollow hope to the industry and entertainment to the rest. It won’t lead to a revival for the industry.

They should remember that Steve Jobs also said “Get closer than ever to your customer. So close that you tell them what they need well before they realize it themselves.” No better time than to start now with a detailed and honest KYC. It will be worth it.

When not busy with his newstoon platform Snapnews, Vishal Bhargava is a real estate enthusiast who views and reviews new projects. Views expressed here are personal.

To read more on real estate sector in India follow our dedicated page here.
Vishal Bhargava When not busy with his newstoon platform Snapnews, is a real estate enthusiast who views and reviews new projects. The views are personal.
first published: Aug 15, 2020 09:46 am
Sections
ISO 27001 - BSI Assurance Mark