By Property Soul (guest contributor)
There are many tactics employed by property developers and their marketing agents during the launch of off-plan properties. In this article we’ll go through the five most common marketing gimmicks, namely:
1. Gather a crowd
2. Create urgency
3. Make some noise
4. Dangle the carrot
5. Promise a good return.
Gimmick 1: Gather a crowd
When it comes to buying big ticket items like properties, no one wants to be a guinea pig. The traffic in the sales gallery is a thermometer to measure the popularity of a project. Seeing people turning up in droves can reassure potential buyers that they are most probably making the right choice.
It is therefore the job of the marketing agent to ensure the following at the sales gallery, at least during the first weekend of a new launch:
1. Fill up the temporary carpark to make it look full
2. Draw a crowd of enthusiastic property agents waiting outside
3. Have a few groups of eager buyers occupying the discussion tables
When a local developer launched a property in the east in mid-2011, instead of using the usual industry practice of balloting for the sequence to pick a flat, their marketing agent asked interested buyers to line up in front of the sales gallery.
On the day before the actual launch, close to three hundred people joined the queue.
There were students, retirees and property agents napping, snacking and playing cards in the queue to kill time. Such a scene made passers-by wonder whether the crowd really consisted of genuine buyers, or just part-timers being paid to fake how hot the new project was.
By coincidence, it was the beginning of the school holidays in June. So was it the popularity of the project, or simply the attractiveness of the incentives?
Gimmick 2: Create urgency
It is the marketing agent’s job to constantly remind interested parties that units are selling fast, and that all units are going to be sold out soon.
There is usually a huge banner hanging at a prominent place in front of the sales gallery that says ’80 percent sold’. The headline in a local paper reads ’70 percent sold on the first day’.
However, some key information may be conveniently missing, including:
1. The planned number of phases for the project launch
2. How many units are actually released in each phase
The full statement should probably be:
1. ’80 percent of 50 units sold in phase one out of five phases’; and
2. ’70 percent sold on first day after 60 percent of units already taken up by VIPs before launch’
When customers ask about the next batch of units for launch, sales representatives may hint that subsequent phases will offer units with poorer view or lower quality finishings, despite the fact that they are sold at higher prices.
Here is the truth: Developers tend to push the less desirable blocks or units to the market first. These units may present an average view, face the west sun or have an awkward layout.
There is a philosophy behind this: If they can sell units which are most difficult to move, the rest of the better units can definitely be sold, and at higher prices. The tactic is known as ‘save the best for last’.
Biggest discounts go to… the last few buyers
You may be surprised to hear this. But the biggest discount is often not the one offered to the first batch of buyers, but the one given to the last few takers. The reasons are many:
1. The market situation may have changed
2. The developer may feel that they have made enough profit for the units sold
3. The marketing agent may find it too much work to continue running the sales gallery
4. The last few units left may be the less desirable ones
Sometimes there is really not much advantage for the early birds who buy earlier than others. Besides gathering a crowd there and creating the urgency to buy, there are other marketing gimmicks you may find familiar at a new launch.
Gimmick 3: Make some noise
To draw the attention of potential buyers, media coverage is a better alternative than advertising. It sounds more convincing and also helps to save money.
The public relations department of property developers knows when to feed the right stories to the journalists, for example a media report or a rumor that a celebrity, an investor or a government official just bought one unit at the sales gallery.
People all want to be seen having the same foresight as the experts in property investment or the big names in their own fields. Thus the release of these stories works to motivate other buyers to follow suit.
In order to wow the readers, the media has a tendency to pick up only unusual cases. An amateur investor may have just bought a place at a ridiculously high price. Or one particular buyer has decided to buy a flat with a unique design, facing or location regardless of the asking price.
An inevitable conclusion is that prices in the property market have just set new highs. The obvious connotation for potential buyers is to take action now before prices jump again.
Gimmick 4: Dangle the carrot
Goodies given away at the sales gallery are a catalyst to close deals. Be it fee absorption, furniture vouchers, furnishing packages, or branded appliances, they are attractive concessions in the eyes of potential buyers. Never mind the fact that such offers are just peanuts compared with the price of the property.
Tempted buyers are often unaware that the value of these goodies can easily be offset by a slight drop in the property’s market value. It is therefore more practical to get an immediate discount off the list price. Ask the sales representative the estimated cost of that branded appliance or furnishing package, then request for a direct deduction from the unit’s asking price in lieu of the developer’s goodie.
Some properties are sold with ‘guaranteed rental return’. It is a scheme that promises owners a fixed percentage of the property’s price as rental income, regardless of the actual rental income, or whether the property is rented out in the first few years.
This tactic is usually deployed to move units in high-end condominiums. The rental income can be seen as a form of discount off the list price.
‘Guaranteed rental return’ is different from earning rental income from actual tenants over the years. Since the amount given has actually been factored into the price, one can also argue that buyers are actually paying for their guaranteed rental amount in advance.
Strictly speaking, the party who benefits most from giving away the carrot is probably the developer itself. It is because these goodies are usually offered when the market starts to cool down so that developers are able to move properties off the shelves without lowering the price.
Gimmick 5: Promise a good return
Once the sales representatives know that you are buying the property for investment, they may claim that their units can be rented out at a certain market rate.
There are two ways to check the validity:
1. Do your own research.
Go to the Urban Redevelopment Authority website to check the latest published figures on ‘Rentals of Private Residential Properties’. Find a similar unit in a nearby project that is relatively new. Check the range of monthly rent to see whether the numbers given are too optimistic.
2. Do some mystery shopping.
Respond to the rental listings of new projects in the same district to check the popularity of properties for rent there.
The sales representative may claim that their units offer an attractive rental return of a certain percentage. It is not difficult to calculate the net monthly ROI (Return on Investment) on your own.
ROI = (monthly rental – loan repayment – maintenance fee – property tax) x 12 ÷ initial investment
Once I stepped into a sales gallery where the salesperson spoke confidently that their units offered a minimum of five percent rental return. But after I did my sums, the cash-on-cash return was actually less than one percent.
Next time before you walk into a sales gallery, remember to do your homework first. When it comes to property investment, ignorance can be very expensive.
By Property Soul, a successful property investor and enthusiast who shares her experiences and knowledge on her blog.