Exigency For Distribution Network In Real Estate Industry

Historically Real Estate has been a restricted regional/local standout. The developers in the North are bounded to cities in the North, and likewise, the developers working in the South don’t want to leave their region.

Why is it so?

Why have the developers of one region not explored development in the other domains, even if they discerned opportunity?  Developers have, in accordance with their arena of operations, been classified as National Developers and Regional Developers. I would further say there are Industrialist developers such as TATA, Godrej, Mahindra who have a presence in more than one industry segment – one of them being Real Estate; hence they fall in the category of National Developers.

1. Industrialist Developers
2. National Developers
3. Regional Developers

Region-wise policy framework, state-wise compliance requirements and administrative framework, and the political set up in any particular region are important reasons for which the developers do not wish to explore the opportunity to venture into other regions other than the one in which they operate.  However, I feel that the fear of competing with the regional developers prohibits this initiative more than the above-stated reasons.

SALES is one of the most important aspects for which no cross-region development happens.

“Naye Daur Ki Nayi Kahani is an attempt to talk about how to expand the SALES or the DISTRIBUTION network of a developer so that he is not limited to offload his inventory only in his region of development.”

Here’s an elaboration.

1. Regional Developer with an established brand name:

It takes a while before you can establish a brand name in the Real Estate Industry, as the time lag between launch of the project and delivery of the project varies from 4 to 6 years, and until and unless you deliver, the customer cannot experience the product and hence cannot talk or share feedback about it.

Developers who consistently deliver quality in time from one project to another become preferred developers. By virtue of word of mouth, they can offload inventory by references from the ones using it. But there is a limit to which you can offload inventory in the same region where it is produced unless you keep the pace of inventory generation slow and follow the path of doing one project at a time.

The challenge is that every developer has his market share in a region, and hence if the developer has to grow his business, he has to find absorption of inventory that he creates.

Selling inventory in the same restricted region does not increase his reach, and hence he lands in an undesirable and high-risk situation of unsold inventory, which creates a dent in his balance sheet as business expansion required leveraging, but the slow pace of sales does not support construction or fulfillment of repayment of financial liabilities.

Marketing in different regions or setting up sales offices outside the region of operation is very expensive prepositions and does not yield the desired ROI.

What is the way out?

Well, friends, the way out is, “Use of the distribution network of a branded developer of one region by the developer of another region, and vice versa.”

Sales in real estate mostly happen by a broker network. Every developer has his broker set up to facilitate SALES. There is a regional brand in North India (Gurgaon, Noida) that wants its presence felt or wants to sell its inventory in the South, to create further reach and garner eyeballs that can absorb its inventory.

Any Regional Developer of the North can explore possibilities of collaborating with any Regional Developer of the South (say Bangalore). This opens up prospects of riding the broker distribution network or sales distribution network of the Bangalore developer, for selling his inventory in the North and vice versa. This planning works well because there is no competition, and both can increase their reach at a minimal cost. This also opens up possibilities of the collaboration of developers of one region with developers of other regions.

2. Use of Technology & Use of cross-region developer infrastructure:

Technology helps in sharing information, using the world wide web across boundaries. And thankfully, today, technology has provided ways to show the field of vision, by virtue of videos using drones, etc. There are also ways to unveil the product from different directions, different angles so that potential buyers can view the location and the product to their heart’s content. But beyond this, we must accept that Real Estate is a capital intensive purchase, and the buyer ought to meet a developer representative to get first-hand information and also confidence.

The developer of one region can use the office infrastructure of the developer of another region for seating 1 or 2 sales staff members, to facilitate transactions and paperwork of the customers, and also use the broker network of that region developer for marketing purposes. Again as this is a reciprocal arrangement, it augurs well for both the participants.

3. Real Estate Consultants could tie-up with regional biggies in their fraternity to facilitate cross-region transactions and also keep their expenses under control.

I know of some large broker houses that tried to expand in different regions by way of opening offices. Most of them have either closed or are on the verge of closing. Reasons being a) Lack of control, b) Negative returns because the cost incurred by way of office rentals, staff salary, and other expenses does not get covered by revenue generated (Negative ROI). The idea of expanding was great, but the office edifice was inefficient.

Friends consider using the infrastructure and network of channel partners of the region where you want to expand and offer your set up to the fellow channel partner in return. This way, it will help both, and both businesses can thrive and prosper. Collaboration is thus a judicious way to create a distribution network. The most successful distribution network is perhaps demonstrated by the telecom industry. There are learnings from FMCG, Automobile examples that can stand us in good stead. However, since real estate is immovable, there has to be a different model thought of.

I have suggested one model, and I am sure there can be other versions also. Let us exchange views and weigh up novel ideas after considering their achievability and feasibility.