Commoditisation is Real Estate’s Biggest Challenge (Opinion)

Stand out in a crowded real estate market by avoiding commoditisation and embracing uniqueness.Thrive without fear, with exceptional returns.

commoditisation of real estate

Today any investment idea, in whatever field, must strive to obey the commandment of entry. This commandment was coined by American entrepreneur MJ DeMarco. It states that as entry barriers to any business road fall, or lessen, the effectiveness of that road declines while competition in that field subsequently strengthens.

In other words, if anyone can start a business easily, in a week or so, to do what you do, you are likely violating the commandment of entry and perilous odds lies ahead. However, there is an exemption, if you violate the commandment of entry, then be prepared to be exceptional. Venturing into real estate investment today is one of those businesses that break the commandment of entry. It will require you to be exceptional and avoid the commoditisation of real estate to succeed. 

The Perils of Homogeneity and Commoditisation of Real Estate

I mean, there is not an iota of regulation to be a developer in this country. Anyone can wake up tomorrow, register a company online and call themselves a real estate developer. And then ice it by getting some house renders online, put them on a brochure or so and call yourself an astute developer. This ease of entry today has created, perhaps, the greatest threat to real estate investment – the commoditisation of real estate. When the difference between a product and another is just price, we say it has been commoditized. The real estate sector is flooded with commoditized projects.

The ‘ME-TOO’ investments have created ‘ME-TOO’ projects. Projects conceived in sidebar chama talks without differentiation or uniqueness, and sink into the crowded abyss. We have, consciously or subconsciously, converted real estate projects to be like cooking gas – homogeneous. The only fight right now, it seems, is to be the cheapest and nothing else – no exceptionalism is required.

The Key to Success in Real Estate Investment

Most real estate projects today have obscenely disregarded the market needs. Houses have become copy-paste of each other leading to commoditization where the soul is sold to the buyer who wants the cheapest price. We have meticulously created low-price buyers fixated on nothing other than price.

The first thing most buyers hurry to look at today is the price because real estate developments all look the same – they are homogenous. I know we like and are ever quick to blame the real estate market. Apparently, we expect the industry to accommodate every project regardless of how it was conceived. It cannot be so and I rejoice it is not so.

In most circumstances, the reason behind a development being empty after completion or stalling before completion, or being auctioned have got nothing to do with the market. The commoditisation of real estate is the driving force behind a lot of the woes facing developers today. They wilfully and deliberately refused to be exceptional with their projects and ended up with the ‘ME-TOO’ developments, flooding the market.

The Role of Research to Avoid Commoditisation in Real Estate

Let me try and put it differently and plainly. The reason many real estate investment projects are empty or stalled due to stagnated sales is primarily because they lack uniqueness. They don’t stand a chance and the only strategy is ‘cutting’ prices to stand out from the crowd. The problem is; everyone else seems to be doing exactly that. So you end up with ten projects in an area involved in a price bidding war. Once you have been outwitted in the war that becomes the end of a project. This is because they have nothing else to offer. I have been privileged to interact with numerous developers and the common denominator for most is their palpable carelessness with project conceptions.

There is nothing like ‘ I have heard’ in real estate, this is a game of numbers and research. And if truly you have ‘heard’ about a certain idea, trust me, you’re not the only one with ears. Chances are there are others who have heard that investment idea too. When clients always tell me what they have been told out there as good real estate investment, I incessantly remind them that we have to go to the market and confirm what they heard or were told.

One time I remember a client who insisted on doing two-bed apartment after hearing some folklore stories in their masters class. When we carried out a comparative market analysis and feasibility studies we found out that there were twelve similar projects that were either ongoing or upcoming. How will you be exceptional in such a pool? Tough. We did studio apartments instead, a happy client to date.

Embracing Exceptionalism: Thriving in a Crowded Market

Let me discount your fears of a real estate bubble; there is none coming, not even a sign on the horizon. Commoditisation of real estate has clouded our eyes to believe there is something wrong with the market – there is none. This is still the go-to industry with excellent returns. The market is much available for everyone and the only way to not only survive but thrive is to be exceptional in the crowd and follow the rules. And it’s pretty simple to do so; pay ruthless attention to the market needs. You will be exceptional in this crowded market. You will sell and rent with ease. There is an old saying, “In a gold rush, don’t dig for gold, sell the shovels.” Commoditisation of real estate projects is the emblem of pain and suffering for most developers. Flee from it!

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BuyRentKenya
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