Importance of Research In Indian Real Estate Sector

The real estate sector primarily constituted by housing, office, retail, and hospitality is one of the largest contributors to India’s growth story for the last couple of decades. The sector is envisaged to accrescent to USD one trillion by 2030 from USD one twenty billion in 2017 and would contribute thirteen percent to India’s Gross Domestic Product (GDP) by 2025.

The sector’s criticality to the direction of India’s economic growth trajectory is further augmented by the fact that it’s the primary source of livelihood for more than fifty-two million people – A number prospected to rise to sixty-seven million by 2022. Furthermore, eighty percent of the people employed in real estate includes a minimally skilled workforce; a major factor in a country grappling with issues of skill development for its large-sized working population.

Despite all the factors listed above, real estate continues to remain one of the most opaque and fragmented industries in the country with data availability being a major concern. This is especially damning considering India’s diverse demographic spread thereby causing the market to be governed by a completely different set of factors even across vectors within the same city.

Key stakeholders in the sector such as developers, end-users, and investors alike have for long relied on their judgment and hearsay to make capital-intensive investment decisions that have often backfired. This has time and again led to a lot of capital being directed towards avenues which were a nonstarter from the word-go. This limited sense of scientific decision making based on speculation is one of the major contributors to the slowdown in the construction sector witnessed in the last three to four years.

The advent of Foreign Direct Investment in 2005 did somewhat underline the importance of sound market research and analysis as more and more institutional investors forayed Indian shores with standard business practices. However, while certain aspects of the industry have been professionalized, traditional speculative ways of investments still galore.

That’s where market research and analysis can and does make a lot of difference. This is because it enables the market players to seek evidence to draw conclusions, with a reasonable degree of assurance.

Effective market research can substantially accentuate operations for all key stakeholders in the real estate industry. It transcends beyond just identifying competitors, understanding their product offerings, etc. and include a multitude of aspects such as:

• Understanding Demographics: Market research helps identify the impact of evolving cultural norms and changing demographics on real estate demand. For example – Baby boomers are giving way to millennials as drivers of economic growth across geographies. This has led to the emergence of novel real estate products such as senior living, student housing, co-living, etc. gaining more traction.
• Identification and Utilisation of New Technologies: In a market underlined by nonpareil competition to entice customers, time to market and cost optimization can be critical factors determining the success of an organization. For example – New construction technologies such as steel structure, prefabrication, etc. have the potential to substantially reduce construction timelines. Thus, R&D, driven by sound market studies, can be an expedient tool for long term sustainable growth of an organization.
• Effective Price Finalisation: With the real estate sector turning more and more capital intensive with each passing day, the product has to be offered at a price that ensures a balance between profit maximization and sales velocity. Market research, through effective mapping of competition and economic position of the target customer segment, can assure that.
• GO-No Go Analysis: Besides the traditional factors such as ‘LOCATION! LOCATION! LOCATION!’ which form a part of investment decisions, key stakeholders such as developers and consumer alike should base their final say on a detailed financial assessment of a project or a developer that they are looking to invest in respectively. This includes extensive research w.r.t achievable price points, average sales velocity in the micro-market, expected cost of construction, sales, and marketing effort expected, analyzing developer’s financial statements,  evaluating a company’s past delivery track record, etc.

The above factors accentuate the importance of market research to protect developers, investors, and property managers from costly investment and development failures as it helps to reduce the inherent risk in their investment decisions. Thus highlighting the role of market research and analysis in leading the way for future evolution in the Indian real estate sector.