Just like in the jungle, in order not to get lost, you have to carry a compass at all times. In real estate investing, market research is your compass.
If you ask real estate experts or investors (both successes and failures), where should real estate investors start? The most common answer you will get is market research.
Considered as the first step, enough to understand how important the role of market research is to the success or failure of a real estate project. So what is market research?
A general definition of market research according to the American Marketing Association is “the collection, recording, and analysis of data on issues related to marketing products and services”.
In general, market research is a powerful supporting tool for business planning of businesses for the overall development strategy of the business and development plans for each stage, each product line (according to the Western Australian Business Association)
More specifically, market research is seen as a method, a tool to measure, to analyze the market deeply in many aspects, from tastes, needs, behaviors, segments of customers, the market situation, the market trend, or even the competitor’s strengths and weaknesses.
From those results, businesses can identify target customers, define a strategic market, choose customer segments, position products, develop marketing strategies, etc. Overall, market research holds a role as a compass in helping businesses find suitable paths for business activities.
In real estate investment, the role of market research is also not out of all of the above. However, in the development process of a real estate project, market research is divided into two phases: market research in the pre-feasibility report of the project and market research for the investment project. In other words, market research needs to be done before the advent of a real estate project.
For example, when an investor wants to invest in a real estate block, the pre-feasibility study of the project will participate right from this stage. All possibilities revolving around that real estate need to be studied to “measure, measure”. And especially to research the market in general and the regional market fully, then analyze and evaluate that Land is suitable for developing what project? What are the current legal regulations (planning, construction area, number of units…)? How do social issues (infrastructure, population, income, environment, culture, etc) affect the project? These pre-feasibility studies help developers make a decision to invest or not to invest in that real estate block.
In the second stage, when the investor already owns the real estate block, the market research will participate in the development of that real estate project. Market research helps investors decide what product lines to develop, who are target customers, how much to value the product, competitive strategies, and product marketing, etc.
True market research must be done from many methods: data collection, survey & investigation, market statistics and collation, and more, which not all consulting companies can do. In the meantime, market research is often done by collecting customer data from the investment and sales units in the fastest way, but it is not always effective with accurate results. Customer data can only provide information about the needs of investment customers but does not represent the true residential needs of the majority of the population, which makes it difficult for many projects to serve the purpose of real customers or high occupancy rate. At that time, it is necessary to survey and investigate groups of potential customers according to sociological methods to determine the best customer portraits.
In the fiercely competitive context of the current real estate market, when customers have a total choice, bringing a product with the right needs and at the right price will definitely be an advantage. It is only possible when you have a good research result.
In fact, many real estate investors in Vietnam have not really appreciated the role of market research. They are willing to spend a lot of budget on marketing, advertising, but less investment in market research. Actually, marketing or advertising also needs to target the right group of potential customers, identifying this customer group also has to come from market research. And mistakes have been made. A project located in the South of the city, with an area of over 10 hectares, scale up to over 2,000 apartments, investment capital of over 300 million dollars, started in 2009 until now is still just gray concrete blocks because the product is not absorbed by the market. Many experts believe that the failure of this project stems from a mistake in market research that leads to the wrong price of the product.
So, real estate investors, make good use of your market research desk, if you do not want to get lost in the fierce competition environment.
Author: Thanh Toan
Translator: Nam Pham – HSSC Hospitality