This article has been written by Sheetal Rangwar pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement from LawSikho.

 This article has been edited and published by Shashwat Kaushik.

Introduction 

When we hear the word real estate, one wonders if the person holding tall buildings, towers, apartments, malls, and commercial and residential complexes might be rich. But this illusion is far from reality. Let me tell you exactly how it intends to mingle with the real estate business and market operational functions. The real estate market has a nexus in both the private and public sectors. The agenda is to maximise the opportunities for developers, investors, and lenders and minimise the risk. The real estate assessment is a process that provides crucial information regarding predevelopment, acquisition, further development, marketing, and disposition of property. Real estate offers various products, such as apartment buildings, offices, and warehouses. These products are evaluated based on their location, area, site, layout, project amenities, services, and prices or rents. It may cover single land use or multiple property benefits. For example, hotel projects like luxury resort properties, conference halls, banquet halls, etc. Retail projects like regional malls, shopping malls, etc. Housing projects like single family, apartments, for sale, or rentals. Industrial projects like big warehouses, laboratory research, cold storage, office space, factories, etc. 

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Understanding how the real estate market operates

To initiate the start of any proposed project, a realtor does a significant study of market analysis like assessment, demographic challenge, topography, vegetation, footfall of people, feasibility, layout and structure, competitors in nearby areas, surveys, psychographic research, focus groups, and pricing. The estimate revolves around assessment, market planning, and the implementation of public strategies.

Developers perform the overview assessment on the parcel or whole piece of land, which determines the disadvantages and advantages of a proposed project and is often supported by the required data. The given output generally covers the location’s advantages, drawbacks, and method of usage that would be appropriate and further provides guidelines on rent or price range that could be achieved in sustained market conditions. 

Market investigation or market analysis, is the next step the developer looks for. It is vital to ascertain the core assumptions that are used by developers for the financial feasibility of the proposed project. For instance, rents and prices can be achieved on accrued land, if there is any need for extra income for the project. Any modifications, upgrades, changes in layout, soil testing, or resource availability required thereon. Forecasting cash flows & return on investment and how it can produce more effective results. And also predicting the bottom line if the market crashes.

Public Relation Strategies – It is significant to note that realtors/developers perform relations campaigns like advertising & marketing, event planning, media relations, and social media rapport building to enhance real estate public relations. One of the important factors for establishing public strategies is press releases. The press releases are often used to tell something about the company’s status, new projects, new services, and improvising brand image (as they expand the knowledge of the company in public – for instance, objectives to be achieved). Consistency in press releases from time to time helps the public recognise the company name.

Why is it necessary to do a market assessment in real estate

There are many types of market studies followed up with multiple reasons to do so. The following are the reasons: 

Provide a glance at the proposed project

The developer will undergo the market study along with supportive data attached to it. He will determine the rents or prices in a given market condition. He can seek to hire a land planner to examine how units can be implemented, and what traffic they are going to attract. And how to accommodate the environmental conditions.

Financial stability for the proposed project

The results driven by market analysis help the developer analyse how much finance is needed for the project. Whether the desired objectives can be achieved in proposed rents or prices or if any additional income is required. Sustaining the marginal cash flows or return on investment. Generally, it also depicts the worst-case scenario if the market crashes.

Potential of a new product in an unproven location

To meet current demand, existing real estate properties have to make changes. For example, 20 years ago, environmentally friendly features were not considered essential things that were too costly for maintenance. But, now the public wants to reside in environmentally friendly spaces, community halls, shopping malls, transportation, usable open space, schools, and health care. The developer can either create a new one or make changes to the existing building.

Equity investors, government funds, or debt financing

The people who are investing in real estate projects want a piece of solid evidence that the developer’s expectations can meet all the requirements of investors. The proposed project is going to attract a return on investment and provide good returns. The investor or government secretly tests the market analysis project to safeguard their funds from misuse.

More marketable product

Understanding the characteristics and demands of market studies helps to design a fine product. For example, the analyst person should take active participation in preliminary planning, including land planners, civil engineers, architects, traffic consultants, financial analysts, public relations specialists, and attorneys. To ensure the successful completion of a project, the developer must consult them.

Private development

With the help of community support, some projects can proceed without approval or assistance from the government. While evaluating the project, officials, local staff and consultants focus on design, traffic & density. However, the developers who are seeking public subsidy for the project are required to submit a report of market study & finance usage.

Economic development planning 

There are government agencies that also monitor the real estate market. At every level, the government has a vested interest in the land owned by people to acknowledge property tax collections effectively. For the welfare of society, the government makes frequent developments to enhance the tax base, business, or workforce housing. Often, these government bodies diligently check all the dos and don’ts before issuing them tax credits or bonds.

Who uses the market assessment report of real estate

The early process of market study triggers the development of ideas and is a great device to control risk. Following is the list of people who make use of market assessment: 

Developer- These people are frequent users of market studies. Basically, it is used during the pre-development process when applying for finance.

  • Whether the location is suitable
  • Identify a mix of products that are best for the market 
  • Guidance for land planners
  • Suggest projects, pricing, and cash flows

Government officials- For collecting tax benefits from developers, the public sector has its nexus in covering all areas, such as metropolitan, industrial, and business sites in small districts or proposed development sites.

  • The officials do the market study to understand the community, region, and reasonableness of housing. 
  • Ensuring housing needs and possible locations for new construction should be encouraged.
  • Provide effective support for redeveloping proposed project plans
  • Expansion for utility service areas like parking space, management of traffic
  • Construction of houses near schools 
  • Fiscal impact of the proposed project for negotiating the monetary management and fees.
  • Compatibility with state and central grant requirements
  • Targeting market niches like an artist studio, artist housing
  • Providing information on prices or rents 

Investors and lenders- The results driven from the cash flow chart tell the lender whether the proposed project can cover all the debt services and also tell the investor what he could expect as a return on investment. People like equity investors, corporate investors, and limited partners do a rigorous study before accepting the loan applications of developers. Before finalising, the investors & lenders ask the market analyst’s opinion on the current status of the market.

  • Do proposed buyers and tenants exist in the locality in sufficient numbers to attract the proposed project?
  • Whether the project is on lease?
  • What are the rents or prices in the competitive market?

Tenants & buyers- These people also often prefer market research before signing the contract or extension of the lease and hire an independent market analyst who helps them decide the effective market usage of the proposed project. The managers of corporate real estate find the advantages of location in different areas or examine the suitability of the site before purchasing or considering the lease.

Market investigation in real estate

Developers sometimes go through an undervaluation of the market. As the project proceeds forward, they realise they have other vital fees to pay the professionals, like architects and engineers, at a minimal stage so their plans can get approved. Market objectives cannot be achieved with an illusionary vision; they must be backed up by some experts and consultants to make the project impact realistic. More importantly, the study objectives, hiring experts or consultants, and the complexity of the research all come with huge costs. 

A developer, lender, investor, or government agency hires an expert or consultant who can do the market investigation strategically before the approval of the proposed project. The following are the key factors taken into consideration:

Land use- To refrain from using single-use property, the developer goes for a multipurpose project. For example, a residential complex may have rental or sale components. A multipurpose project involves office space, hotels, and the need to collect employment data for that region. For instance, both skilled and unskilled workers are needed during the continuation of real estate projects. If the project is large, then two or more consultants may carry out the market research. However, multi-purpose projects are riskier than single-use properties because, out of 4 businesses, one or two may not work out entirely.

In detail report- In the initial stages, a glance report is needed of that local area, for example, the geographical location, demographic challenges, and key characteristics of competition therein, which helps to improve the ideas of the project and how they can outperform others. This report will be forwarded to investors or lenders for further implementation of a methodology to compete with the existing demand segment.

Experience of a market analyst- If the developer hires a senior consultant, he may ask for expensive fees. However, it is far better than hiring junior people, who are inexperienced in real estate projects Senior consultants would be familiar with all aspects of the project and make recommendations and reviews of investors.

Filed work expenses- As the market investigation isn’t a one day assessment, it requires a lot of travel fees to analyse the little things. Mostly, the consultant should be from a nearby location and know all the ground realities of the proposed project.

Buying data from faithful resources- Purchasing software or inside market data from a private vendor can save a lot of money and time. Manual collection of data can cost up to thousands and lakhs of rupees, depending on the nature of the project.

Premium amount- A developer who hires a consultant will pay a premium amount as per agreed terms between them. The consultant may need the help of outside support to get his job done on time.

RERA Act- Section 35 of the Real Estate Regulatory Act of 2016 prescribes the investigation powers of developers. Under this, RERA has the power to conduct an inquiry and investigate the promoters, allottees, or real estate agents as and when required.

To safeguard the interests of buyers and tenants, RERA has the same powers mentioned in Section 30 of the Civil Procedure Code of 1908. The following are 

  • Discovery and production of books of account- To avoid financial irregularities in books of account, the Authority of RERA can direct developers to show accounts in relation to the project. The developer has to comply with the order; otherwise, failing to do so, the authority can appoint a commission to search for books of accounts.
  • Examining the witnesses on oath – The authority of RERA can summon any person to examine on oath. As in the real estate business, there are multiple agreements like agreements for sale, memorandum of understanding, lease agreements, etc. The authority can direct the person to submit the report on an affidavit. 
  • Issue Commission for the Examination of Witnesses or documents – Many times, a developer may ask for unconditional/ irrevocable consent to make any alterations to the project. In such cases, the person can file a complaint under Section 31 for violations of the contract.
  • Summon & enforce the attendance of persons – The authority can ask them to present in person before the court on a trial date & examine them on oath. 

Public relations strategies in real estate

The real estate business has very fierce competition. Most real estate companies are now using PR campaigns to build public relations. To promote the brand image of the company, they have heavily focused on real estate marketing plans. 

  • Press releases- To generate leads, it is an incredible procedure. The press release is a powerful and effective way to attract clients and increase the chance of getting noticed. The companies write direct blogs, letters, or story-worthy pieces and own websites, which make them unique for their audience.
  • Targeting a particular niche- In this, the developer mainly focuses on a limited audience. Suppose he has a four-floor building with him, which he wants to either lease or rent out. Primarily, the target audience is small business enterprises like parlours, tailoring, boutiques, commercial banks, coaching centres, etc.
  • Email campaign- An attractive email campaign with a perfect subject line helps 70 percent of people open the email and explore the website. Features like newsletters, subscribing to the website, daily updates, and exciting offers create a trust and strong image in their minds.
  • Website- A genuine website with astonishing pictures or videos of beautiful properties compels potential clients to take action and call the developer.
  • SEO and content- SEO and content marketing help guide the buyer and tenant to know about the options that are available in the proposed project, like office space, parking, and gardens. A hassle-free process and a payment blog will help them create a brand image for real estate and build trust. Showcasing the reviews of previous clients is an awesome way to attract multiple buyers.
  • Social media- Collaborating with influencers is a great way to reach a large audience. The participation on social media strategically plans out the best results of the proposed project. YouTube, Instagram, Facebook, etc. influencers assist the public in knowing about the details and description of the property.
  • Offline media to attract a larger market- Newspapers, hoarding, and pamphlets are also all great ways of advertising and marketing.

Laws for real estate sector in India

The Indian real estate sector is governed by a complex web of laws, regulations, and policies. These laws aim to facilitate the smooth functioning of the sector, protect the interests of stakeholders, and promote sustainable development. Some of the key laws and regulations governing the real estate sector in India include:

The Real Estate (Regulation and Development) Act, 2016 (RERA)

The Real Estate (Regulation and Development) Act, 2016 (RERA), is a landmark legislation enacted by the Indian Parliament to regulate and promote the real estate sector in India. The Act aims to protect the interests of homebuyers, ensure transparency and accountability in real estate transactions, and boost investments in the sector.

Key provisions of RERA

  1. Registration of real estate projects: All ongoing and new real estate projects, with a minimum plot area of 500 square meters or eight apartments must be registered with the Real Estate Regulatory Authority (RERA) established in each state.
  2. Mandatory disclosures: Developers are required to disclose all relevant project details, including land title documents, approvals, and project plans, on the RERA website. This information must be updated regularly to keep buyers informed.
  3. Escrow account: Developers must deposit 70% of the project funds in a separate escrow account dedicated to the construction costs of the project. This measure ensures that project funds are utilised for the intended purpose and prevents diversion of funds.
  4. Timely completion: Developers must adhere to the timelines specified in the project registration document. In case of delays, developers are liable to pay interest to homebuyers as per the RERA Act.
  5. Consumer protection: Homebuyers have the right to file complaints with the RERA Authority against developers for any violations of the Act. The Authority has the power to adjudicate disputes and impose penalties on developers.
  6. Transparency and accountability: RERA mandates developers to provide regular updates on project progress, including photographs and videos, on the RERA website. This transparency measure enables homebuyers to monitor the construction status and hold developers accountable.

The implementation of RERA has brought about significant changes in the Indian real estate sector. It has restored confidence among homebuyers, reduced project delays, and improved the overall transparency and accountability of real estate transactions. As a result, the sector has witnessed increased investments and a renewed focus on quality and timely project delivery.

The Transfer of Property Act, 1882

  • This Act governs the transfer of ownership of immovable property in India.
  • It provides a comprehensive framework for various types of property transfers, including sale, gift, and mortgage.
  • The Act lays down the essential elements of a valid transfer, such as the intention to transfer, the capacity of the parties involved, and the consideration (if any).
  • It also prescribes the formalities required for a valid transfer, such as the execution and registration of the property documents.
  • The Transfer of Property Act plays a crucial role in ensuring the legality and enforceability of property transfers in India.

The Indian Contract Act, 1872

  • This Act governs contracts in India, including contracts for the sale and purchase of real estate.
  • It provides the legal framework for the formation, interpretation, and enforcement of contracts.
  • The Act defines essential elements of a valid contract, such as offer, acceptance, consideration, and legality of object.
  • It also deals with issues such as breach of contract and remedies for breach.
  • The Indian Contract Act is fundamental to understanding the legal aspects of real estate transactions and ensuring the rights and obligations of the parties involved.

The Income Tax Act, 1961

  • This Act governs the taxation of income from real estate.
  • It provides the framework for calculating taxable income, including rental income, capital gains from property sales, and other income related to real estate investments.
  • The Act specifies various deductions and exemptions available to taxpayers, such as interest on home loans and depreciation on property.
  • It also prescribes the rates of income tax applicable to different income slabs.
  • Understanding the provisions of the Income Tax Act is crucial for real estate investors to optimise their tax liability and comply with legal requirements.

The Stamp Act, 1899

  • This Act governs the stamping of documents related to the transfer of immovable property.
  • It requires the payment of stamp duty on certain documents, such as sale deeds, gift deeds, and leases.
  • The stamp duty varies from state to state and is typically a percentage of the property’s value.
  • The Stamp Act ensures that property transfers are duly documented and authenticated, providing legal validity and enforceability.

The Land Acquisition Act, 1894

  • This Act empowers the government to acquire private land for public purposes.
  • It provides for the payment of compensation to landowners whose land is acquired.
  • The Act specifies the procedures for land acquisition, including the assessment of compensation, the right to challenge the acquisition, and the resettlement and rehabilitation of affected persons.
  • The Land Acquisition Act plays a crucial role in balancing the need for public infrastructure development with the rights of individual landowners.

The Urban Land (Ceiling and Regulation) Act, 1976

  • This Act imposes a ceiling on the ownership of urban land.
  • It aims to prevent the concentration of land in a few hands and promote the equitable distribution of land.
  • The Act specifies the maximum area of land that an individual or entity can own in urban areas.
  • It also provides for the regulation of land use and the development of urban areas.
  • The Urban Land (Ceiling and Regulation) Act seeks to address issues of land scarcity and ensure a more equitable distribution of urban land resources.

These are just some of the key laws governing the real estate sector in India. These laws play a vital role in regulating the sector, protecting the interests of stakeholders, and promoting sustainable development.

Conclusion 

In conclusion, the real estate market operates within a dynamic framework that involves a thorough understanding of market conditions, demographics, and financial feasibility. Market assessment plays a pivotal role in guiding developers, investors, lenders, and government officials in making informed decisions regarding project viability and potential returns. The multifaceted nature of real estate products, ranging from residential to commercial and industrial sectors, necessitates a comprehensive market investigation to ensure success.

Market studies are crucial for developers to determine project suitability, financial stability, and the potential of a new product in a given location. Government officials rely on market assessments to collect tax benefits, encourage housing development, and plan for economic growth. Investors and lenders scrutinise market reports to gauge the feasibility of returns on investment, while tenants and buyers use them to make informed decisions. Market investigation involves careful consideration of factors such as land usage, detailed reports, the experience of market analysts, fieldwork expenses, and compliance with regulatory authorities like RERA.

In the competitive landscape of real estate, effective public relations strategies, including press releases, targeted niche marketing, email campaigns, a strong online presence, and collaborations with influencers, are essential for building a brand image and attracting potential clients. Offline media, such as newspapers and hoardings, also contribute to broader market visibility. In essence, the success of any real estate venture hinges on a well-informed market assessment and strategic public relations initiatives.

References 

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