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Mumbai’s Unsold Inventory Could Lead To A Price Correction

Monday, August 11, 2014
By Bashesh Gala

Bashesh Gala is Managing Director, 39 Solutions

Real estate has been the most sought after asset class in the last quarter century. No other asset class in India has been able to consistently deliver like real estate has. However, global meltdown, sluggish growth and political paralysis that gripped India for the last couple of years have ensured that the Indian growth juggernaut is barely crawling. The real estate sector is the most affected and this can be reflected in the sales of the industry.

Real estate has always been faced with a myriad of challenges like lack of trust, transparency and an ad-hoc operation process. This unorganised sector has seen a lot of new entrants in the last decade. It was believed that the bludgeoning population of India would always ensure that high demand for realty exists which in turn resulted in ever increasing prices. Some believe that the real estate is a bubble waiting to burst today. The last few quarters have shown recessionary glimpses.

Research from Knight Frank indicates that the fact that demand has not picked up in recent times should be of great concern to developers as the quarters required to liquidate existing inventory keep increasing.

Nearly 290,000 residential units are under construction in the Mumbai residential market, while unsold inventory levels are close to 130,000. Unsold inventory constitutes units in ready as well as under construction projects. The fact that the unsold inventory level in the Mumbai metropolitan region (MMR) is almost 45% gives a perspective of the dire situation of the Mumbai residential market.

The increase in inventories coupled with weakening absorption levels would put further pressure on prices. Liquidity constraints and the increase in construction cost will also pose a challenge for developers leading to a further slowdown in project launches. Demand however, is likely to remain subdued for 2014 as the market continues to bottom out against the backdrop of a sluggish economy. Hence, a more pronounced price correction from current levels is likely in the medium term.

Figure 1: Real estate forecasted demand & supply
In such a scenario the right branding, smart positioning and an integrated marketing plan based on ROMI (return on marketing initiative) is imperative to differentiate in a crowd and ensure success.

Based on above analysis, insights and proprietary models, 39 Solutions recommends the following:
1.    Real estate firms must scale down blast marketing or traditional marketing. One must accept that these are different times requiring innovative marketing solutions and not keep on drawing from previous experience.

2.    Real estate firms must gather previous marketing campaign data and calculate cost per lead and cost per sale. Using these metrics and other analytical data, an integrated marketing campaign must be launched. Each activity must be accounted for and must ensure short term tangible results. Rule of thumb for ROMI (return on marketable initiative) is 30% to 70%

3.    Real estate firms must make a clear effort to communicate regularly with all stake holders. This will lead to transparency and initiation of trust.

4.    Real estate firms having a strong brand name, impressionable goodwill or appreciation can reap benefits during such times. They can reach out to past customers and create a strong word of mouth campaign to create a buzz at very low cost.

5.    Correct positioning in this market is imperative to generate sales at low cost. Right targeting of the potential customers and ensuring a positive and memorable site/property visit increases likelihood of sale by 400%.

6.    The market is flooded by offers, scheme and discounts. However the developer must not stray the main focus from the deliverables, quality and timeline. Customers still are likely to reward strong brands and reputational developers than go with an attractive offer. Brand creation, enhancement and management are crucial to garner eyeballs during such times.

39 Solutions is India’s leading strategy and brand insights firm. With proven expertise and global experience, 39 Solutions partners with clients and works closely with them to create success stories. We help a business to grow, create a strong brand, manage risk and create sustainable strategic advantages.

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