by Charles Phillpot
The residential and commercial property markets are seen as being two totally different arenas in almost all respects. However, whether a “professional surveyor” or “property shop manager”, the use of marketing is making increasing inroads to the property business. This, then, is a view of the property market from a marketing rather than a property standpoint.
Currently, the residential market provides more interesting business for a marketing professional: residential developers are in a difficult position and need to use all the tools of marketing in conjunction with classicial agency techniques.
Residential developers are being faced with actively having to “sell their products”. The use of marketing services as a separate tool (and having to pay for it) may be a new experience, yet as sales become harder, the options become fewer. This situation may yet be reflected in other parts of the property market.
The major problems
The past few months have seen the residential market softening in a way unseen since the early 1970s, and the hoped-for improvement seems far away. Some institutions are forecasting base rates of 20% in 1990, and a Labour government seems more probable than at any other stage in the last decade. Indeed, some property people have stopped asking when the upturn in the residential market will come, but whether it will improve at all.
What are some of the key changes?
- Until 1988 demand outstripped supply, allowing price rises.
- This strength of demand allowed a development to achieve sales, even prior to construction, with a lot less effort being given to either the site or its presentation.
- The “off plan” market was strong, with purchasers forming queues outside sales offices clutching cheque books prior to the opening of a development.
- Few deals or incentives on price or timing were necessary.
- Banks were keen to lend to developers, who consistently performed better than expectation.
The situation today is that:
- Demand is now substantially below supply, forcing price reductions.
- The volume of sales is below target, and is in some cases non-existent.
- Many developers are forced to trade heavily in deals and incentives.
- Traffic and response to advertising is well below previous levels.
- Developers have to revise cash-flow plans regularly, with overall returns from residential projects seen on the decline.
What can the developer do?
There are no universal panaceas that can cure the adverse economic climate, but experience with a mix of developments does point to some basic disciplines that can minimise the current downturn.
(1) Research
Before breaking ground, check with your target market that the property you plan to build appeals to them at the price you have in mind. Do not guess, ask! Make sure your scheme matches market demand. Take advantage of research and find out if the name, logo and even the advertising appeal to your target customers.
(2) Quality
Do not compromise on the quality of build, layout and finish. The developments that are still selling are those which the buyer perceives to be “good quality”. Buyers can be very choosy, and in a bear market only the best will sell.
(3) Price
Developers should resist the temptation to chase a falling market, or give away a free Porsche. Check the comparables, fix a very realistic price, offer a package such as a fixed mortgage for a year, and stick to your guns. The market is price-sensitive, but price is only one factor in the equation. Potential purchasers’ inability to sell their own homes is the major problem, and slashing prices 30% will not solve their quandary.
- Cash-flow plans
Costs are rising while projected incomes are falling. Revise rate of sale plans to a more realistic level, set up a core marketing budget, and stick to it. Lenders need to be kept up to date on any movement in the bottom line, no matter how unpleasant.
- Presentation
Do not try to sell from a building site. Wait until the development, or at least a good part of it, is finished, with any other construction hoarded off before inviting customers to view. Make sure that the landscaping is up to standard and that the parking areas are free from skips and mud.
- Show units
Make your customers drool! Do not spare the expense in making your show unit the one they remember after seeing six in one day. Often the show flats are the first to sell: the expense can be recoupled by a loading on the regular price and new show units can be furbished. The show units are the shop window of the development, and their appeal — or lack of it — can set the pace of sale.
- Advertising
Advertising = Traffic = Sales
Response may well be lower than before, but can you afford not to have any visitors? A site builds up a momentum through its marketing activity. If you turn off the advertising tap today, it may cost a lot more to turn it back on.
- Public relations
Any market is very sensitive to media comment. Many are the examples of a press prediction on Monday becoming reality on Tuesday. The development industry has been something of a target for criticism over the past few months, after having enjoyed more positive coverage in preceding years. The property press can be the friends of the development industry if given fair and sensible stories. There is no magic answer to always getting it right with the press, but if we present the development realistically in the context of its environment, demonstrate a well-planned, attractive product, and are frank about the market and future prospects, the right picture will be created.
- Sales office
Keep it open, keep the hours up and make sure all the disciplines are being observed by sales staff. Are they: screening visitors properly; presenting the most positive case; chasing every lead; giving 100% commitment — plus a little more? And are you giving them a real incentive to make the sale?
Men from the boys
The current market is sorting the men from the boys. Expenditure and disciplines generally must tighten in response to the decline in sales. If developers can cope with this market and set realistic targets that have the support of their boards and banks, then there will be less disappointment all round.
All markets experience cyclical movement such as that which property is experiencing today. If this period helps us to understand better some of our marketing tools, it will put the whole industry in a better position to take advantage of the market when it improves, as one day it must.
