Understanding Consumer Psychology and Pricing Elasticity in Real Estate

Real estate majorly revolves around the location of the property, and pricing has generally been the key factor. However, it’s crucial to consider another significant aspect, which is consumer psychology. A detailed understanding of the consumer psychology influencing pricing elasticity is essential, as real estate reflects the overall health of the economy.

For example, in 2022, the demand for 3 BHK homes was high because the economy, especially the tech sector, was thriving. Young professionals, around 28 years old, earning between 30 to 40 lakhs were investing a major part of their income in homes, cars, and travel. Homes were a priority, symbolizing status and stability. Fast forward to 2023, the demand for 3 BHKs dropped by more than half. Despite still earning 40 lakhs, individuals became cautious due to news of layoffs and economic uncertainty. Understanding the consumer’s thought process is now crucial when planning or pricing projects.

To illustrate this, let’s look at PCMC and the surrounding localities of PMC, representing West Pune’s real estate trajectory. Analyzing registrations from Sep-Oct 2022 and comparing them with 2023, we observe a significant decline in real estate sales in previously popular areas like Wakad, Balewadi, Rahatni, and Thergaon. In contrast, Tathwade, Punawale, and Ravet have experienced an upswing, possibly influenced by a mix of inventory and increasing prices. Interestingly, Hinjewadi has defied the trend, with volumes increasing despite rising prices. This data emphasizes the need to adapt strategies based on consumer behavior and market dynamics.

Real Estate Project-Wise Analysis: Key Metrics and Trends

Types of Buyers and Location Preferences

1. PCMC Buyers Preferred Locations:

   • PCMC Buyers preferred location Encompass crossing a highway.
   • Wakad
   • Ravet
   • Mamurdi

   Migrant Buyers Preferred Locations:

   • Hinjewadi

2. Affordable Segment Bubble:

   • Punawale
   • Tathawade
   • Ravet

Factors Influencing Consumer’s Buying Preferences

1. Affordability

   The shift in demand towards Punawale, Tathawade, and Ravet indicates a preference for more affordable housing options. Consumers are becoming increasingly conscious of their budgets, especially in times of economic uncertainty.

2. Inventory Mix

   Locations experiencing an upswing, like Tathwade and Kiwale, are likely driven by a well-balanced inventory mix, offering a variety of 2 BHKs and compact 3 BHKs.

3. Brand Pull

   Despite higher costs, in certain areas like Hinjewadi continue to attract buyers due to brand pull. Projects like Lodha Hinjewadi and VTP Earth 1 showcase the influence of a strong brand presence.

4. Marketing Strategies

   Higher marketing costs and tie-ups with celebrities are observed in projects like Kohinoor Westview Reserve, indicating the significance of effective real estate marketing strategies in influencing buyer decisions.

5. Location Advantage

   Spillover effects from neighbouring areas contribute to the success of projects like Mihir Amara and Pharande Puneville. Buyers are drawn to locations with pricing advantages and proximity to established neighborhoods.

Pricing Elasticity Insights

1. Compact Homes Trend

   The data reveals a trend towards compact homes, driven by factors like affordability and optimal sizing. Projects like Unique K Town and Sai Bliss exemplify the demand for more manageable living spaces.

2. Township Experience Appeal

   Developments with a township experience continue to attract buyers, emphasizing the enduring appeal of holistic living environments.

3. Shift in Volume

   The normalized carpet to saleable ratio and Average Per sq.ft. Rate (APR) calculations help identify shifts in volume and pricing trends, offering valuable insights for developers and investors.

Conclusion

Understanding consumer psychology and pricing elasticity in real estate requires a sophisticated approach. By considering the type of buyer, location preferences, and various influencing factors, developers can adapt their strategies to meet the evolving consumer demands and market dynamics. The data-driven analysis depicted here serves as a guide for stakeholders navigating the ever-changing real estate landscape in West Pune.