Demand Creation

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

August 2004 

When assessing the feasibility of and demand for a real estate project, generally one would look related macro and micro factors, such as GDP performance, supply (competition), absorption, market price, construction costs, population, demographics, household income, working population, site location, infrastructures, amenities and so on, and work out the likely demand from bottom up. However, this is not always possible or even meaningful, especially if the market (economy) in question is an emerging / developing one, as whatever existing market statistics it has (may or) may not be helpful in pointing toward certain market trends and real estate opportunities previously unseen. Demand, if any, is to be .led・ out and created. A certain combination of intuition, creativity, vision, resourcefulness, and guts is called for, and the latter is particularly vital as the investor is not only likely to lose money, he / she may also lose face among his / peers (competitors) for having tried something uncharted.

Two situations offer opportunities for demand creation. First, an innovation such as the first computer where proven effective would generate new demand for the product or service, yet no prior data might give a clue of the likely demand. Second, introducing an existing product or service into an economy / market which previously was unable to afford the product or service but could do so now is another option. Again, existing statistics may give little of the likely demand. From another angle, one can say the demand has been .tempted・ to reveal itself, i.e. demand creation does not imply creating demand out of nothing but being instrumental in releasing .latent・ demand.

To create demand also means to be the first (ones) to enter the market, a pioneer of sort. While there are first-mover advantages, there are also higher risks, which may be reduced via the following approaches:

a)      Do it large scale = this is not being egoistic for if the scale is not big enough, profits would not be big enough to justify the entry, though naturally the entry planning may follow a step-by-step approach.

b)      Do something that no one has noticed or would believe even if told = this would not only help to ensure the initial business confidentiality required but also in negotiating for e.g. land price reductions.

c)      Be strong in corporate culture, management, and business acumen / creativity = even if the competition leans of the new idea and accepts it, it may not be able to cause real concern and pose much competition should it be operationally ineffective and inefficient. This incidentally implies corporations without strong management capabilities etc are safer not being pioneers.

d)      Enlighten the market = of the benefits and advantages the new product and service may harbor, and this implies a certain level of good public relations is required.

e)      Post-sale service = like car-buying, many real estate purchasers and investors, given all things being equal, are likely to go with real estate developers who provide a better after-sale service and pay a premium for it.

All in all, it is much harder to invent or find a new real estate use / type / product in a matured market than to introduce a proven existing real estate use / type / product in a developing market, though perseverance and confidence are required to make it through the initial investment stage when most other market participants including potential customers do not fully appreciate the vision.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.  

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