Price Trap Three – Heavy Marketing Push

In the last three Road to Riches Blogs, I have outlined two most common price traps that buyers fall for while buying Real Estate. Trap One = Big Brand Builders and Trap Two = Location. In this blog, I address trap three, which although subtle is extremely effective – the trap of a Heavy Marketing Push.

DEVELOPER / BUILDER Vs. INDIVIDUAL SELLER.

Resources. The difference between a builder/developer and an individual seller is summed up in this one word. The former has it in abundance while the latter doesn’t. So a builder/developer can put these resources to good use and create a lot of noise in the market when attempting to sell his products. He does this by:

  1. Employing bigger teams.
  2. Giving a strong marketing/promotion push.
  3. Distributing the product through an extensive network.

THIS IS HOW THE PRICE TRAP IS LAID.

  • A developer launches a new project in a hitherto unknown location. Usually this developer is a strong brand and enjoys a good standing in the market
  • The developer then starts aggressive marketing for the product and selling it through his own channels or direct teams.
  • The marketing and sales pitch is based around ‘manufactured’ virtues of the location – plans for greater connectivity, some new road coming up in future, upcoming commercial and retail hubs, future development of major infrastructure and such.
  • More developers buy land, apply for licenses and prepare saleable inventory. They also start selling on same promises and add to the propaganda machinery.
  • All marketing channels – from offline to online, traditional to new media – are clogged with the same promises and location starts trending.
  • Inventory is quickly offloaded to retail buyers, and developers move to the next location with their super-hit theatre production.

THE IMPACT

The one at the receiving end of this drama is usually the buyer, who is trapped into buying inventory at a substantially inflated price. Price that is driven up by fake promises and hype created by an aggressive marketing push.

If you pay close and careful attention to real estate promotions across media channels at a given period of time, you will often find them converging to promote the same location. It is no wonder that for a period of time Dwarka Expressway will be the toast of town, only to be dislodged by Golf Course Extension Road, and then Bhiwadi and then Noida Extension and so on and so forth. And it will be in unison across all media.

THE INDIVIDUAL SELLER

The scenario changes drastically when it comes to an individual seller – a primary investor trying to sell in the secondary market. This seller faces a buyer who has not been exposed to the marketing bandwagon. Hence the negotiations are hard and an indication of the actual market price.

An intelligent investor should, therefore, look away from the collected frenzy created by a marketing push and focus on finding products in locations where such artificial forces have not hyped sentiments and prices. One could find real bargains at locations that are not marketed heavily.

A WORD OF CAUTION

An individual investor must always remember the following challenges he/she will face while liquidating his/her position:

  • Significant dependence on local brokers
  • Minimal resources for any marketing push
  • Competition with a lot of “me too” products leading to several rounds of negotiations and a slow sale process.

To come out profitable given the above constraints, an investor must learn “Smart Buying” instead of relying on “Luck (or Smart Selling)”.