With increasing awareness among consumers, rise in customer activism and rapid changes in the level of homebuyers’ expectations, the real estate sector is facing many challenges. Unless developers get their act together, they may find it increasingly difficult to sell the high levels of inventory piling up across the country.
In the surveys and interviews conducted by Bain and company, customers in Mumbai and Bengaluru listed on-time delivery, luxury interiors, financial strength, track record, premium location and trust, among other factors, as the attributes that drive their purchase decisions . But when customers rated their perceptions of 17 major real estate developers, fewer than half received a positive Net Promoter Score, a well-established measure of customer loyalty, says a report by Bain and Company titled Residential Real Estate in India – A New Paradigm For Success.
Buying real estate is often the largest, most significant purchase people make in their lifetimes. As such, customers have high degrees of involvement and investment in their decisions. There is greater emphasis than ever on word-of-mouth information, including online reviews. Currently, Indian residential real estate developers do not have a customer mindset. This has resulted in poor advocacy, with a few customers saying they would recommend a developer’s projects to a friend or colleague. Customers’ expectations of residential apartments have also changed rapidly. What was considered top of the line in 2010 is a base expectation in 2015, says the report.
“We expect this trend of fast-changing demands to accelerate over the coming years. Given that many residential projects take more than five years from conceptualisation to handover, developers must anticipate what customers will want three to five years in the future — and then begin building that today. There is a major opportunity for developers to tailor their brands to key purchase criteria, both current and projected. Creating strong product and brand strategies to match target customer preferences is more important than ever. Delivering key attributes, from pricing and payment to clear communication, requires managing key touchpoints with customers before, during and after purchase. Developers should also consider segmenting their customers and building their brands to position themselves for various customer types. Each of these changes requires developers to transition from a transaction-based approach to a relationship-based one,” says the report.
And so, beyond the short-term demand factors, there is immense potential in residential real estate in India. Organised Indian real estate demand is estimated at roughly 880 million sq ft. It is forecast to reach approximately 1.35 billion sq ft by 2020, a 9% annual growth rate. Residential real estate is responsible for 85% of the demand. This growth is supported by robust underlying market drivers such as favourable macroeconomic conditions, increasing affordability and urbanisation, improved access to credit and the gradual shift from unorganised real estate construction to organised development.
Going forward, businesses in the real estate sector will have to do things very differently to be successful. Builders will have to keep three things in mind. Firstly, they will have to decide on the markets they want to play in, both geographically as well as market segment wise. Secondly, the builder needs to choose his business model and then get the right processes in place to deliver on that choice and the third most important factor is to keep the customer in mind.