Why do many real estate developers dare not develop large-sized residential units?

A very, very interesting small detail, but behind it lies a big problem.

I review more than 200 projects a year and have visited many places, and I have found that this is not an isolated case. More and more projects are bringing on-site feedback: the first units to be sold in their projects are always the large-sized apartments, and the largest and most expensive ones are always snapped up first. Many project operators are regretting that the apartment layouts they designed were too small back then; otherwise, with fewer total units, the sales speed would have been much faster.

But today, I am not going to discuss the issue of customer demand. What I see does not seem to be a question of "whether they want to" or "whether they are capable", but a question of "whether they dare to". That is the key point.

01

Why do they dare not build large-sized apartments?

Essentially, this represents a mindset: do not create risky or overly aggressive products. This is actually the main strategy adopted by many professional managers. There are several underlying dimensions of consideration behind this:

If the apartment size is made too large, the first problem is that there is no precedent in the market — such a product has not been tested by the market. For project operators, doing this will make them feel insecure, and they cannot be sure if the product is too far ahead of customer needs. And if they make a mistake, the cost will be huge. Even if the probability of such a "worst-case scenario" is extremely low, it is an unbearable loss. This also means that project operators do not believe they can challenge the current supply-side changes in the market.

Secondly, this also represents peer pressure. When everyone else is building small-sized apartments and you are making aggressive large-sized ones, you will definitely attract a lot of attention from your peers, and this potential attention will bring great anxiety.

Of course, I think the biggest pressure actually comes from within the company. To promote the implementation of such a product, there will be a lot of internal communication costs, and you will face many doubts. In many cases, individuals need to take a lot of responsibility. Coupled with the interweaving of performance and schedule changes, the development of absolute large-sized apartments will often face tests. So you will find that the larger the company, the less likely it is to launch aggressive products.

Therefore, to a certain extent, "controlling the total price and building small-sized apartments" has become a seemingly "mistake-proof" choice. Because you have many arguments to promote the implementation of this product: with a small area, when the market is sluggish, you can maintain the same unit price but a lower total price to gain an advantage; when the market is good, you can achieve a unit price premium while maintaining the same total price; a lower total price means more potential customers, more people will buy your houses, and the sales performance will be more guaranteed.

Does this make sense from every perspective? Moreover, these so-called rationales are supported by past "successful experience" — when the property market was booming, 90-square-meter small three-bedroom apartments were rampant in the market, and they were indeed all sold out in the end. This also verified that controlling the total price and building small-sized apartments is the right approach.

Then in a sluggish market, we often see that many projects have greatly improved their product strength in all dimensions, except for the design of individual apartment layouts, where they choose to play it safe. The underlying logic is: let users get the best product at the lowest cost. Including the common marketing slogan: "120 square meters, giving you the spatial experience of 140 square meters."

Is this logic really flawless?

02

In fact, you will find that none of these logics are from the customer's perspective. Or to say, none of them truly think about problems based on customer needs. All these logics hide a major premise: my house will definitely have buyers, and whether people will buy it or not is just a matter of money.

This is a very typical mindset of project operators from the previous cycle.

This is also the core reason why I have been emphasizing that project operators need to change their thinking. The current market feedback of projects shows that customers have been divided into two camps:

The first type are those who are not buying houses or are waiting and seeing. They do focus heavily on cost performance and are a group driven by price. These customers do have demands, but their overall conversion cycle is extremely long, and they are very likely to be diverted by sales channels.

The second type are people who are determined to buy houses. This group is not large, but they definitely exist in a real and concrete way in the market. Moreover, these people are bolder than the project operators. We previously wrote an article titled "Now, You Can Only Make Money From the Wealthy", which actually illustrates this point. Their demands and expectations may far exceed our imagination. For them, they may have passed the stage of buying houses for investment, and their families already own more than one property. They can indeed choose not to buy a house, but if they decide to buy one, they must get a completely different house.

This is also why, in many projects, the larger-sized apartments are sold out first. Because driven by the logic of "controlling the total price" in the previous cycle, the product area segments of most properties have been seriously homogenized. Countless customers cannot buy a true large-sized apartment, let alone a large-sized apartment community with a pure high-end orientation. Therefore, for them, hoping to get a fundamentally different product through this purchase has become an obvious manifestation of demand.

What they are waiting for is not a market recovery, nor just a prime location, but to find a project operator who shares their vision and can create products that truly meet their needs.

03

From this perspective, a big problem of many enterprises is also exposed: the so-called "customer research" has not been truly promoted in a strict sense.

How is customer research usually done in daily work? Most customer research is essentially a survey of the market — looking at what products are being sold in the market and which ones are selling well, so as to draw the conclusion of "what kind of product we can develop to ensure sales". This is a very short-sighted logic that ignores several key issues:

When a project sells well, is it because the market is good, or because the product is really excellent? Even if the product is really good and sold well in the past, does that mean it will definitely sell well in the future? Has the demand been satisfied in advance? If a product does not sell well, is it necessarily because there is a problem with the product itself? When the overall market is sluggish, is it because there is a lack of demand, or because there is a problem on the supply side?

These logics have not been sorted out, but people directly use the results to deduce new results, which has led to many problems being covered up — these are the issues left over from the rising period of the property market. Strictly speaking, what has been done is only "market" work, not "customer research". Even if there is some customer research now, it is often simply outsourced to a third party, who only makes questionnaires, asks a few questions, and lets people tick boxes. The work has become a routine process, so it is impossible to gain insight into the real market demand.

This actually touches on an ultimate challenge: during the long rising cycle of the property market, has the entire development team lost their sensitivity to the market? This is also the biggest problem we have seen in many project visits — the team has become "desensitized" to customers. A large amount of the team's attention has been occupied by numbers, which makes many departments become dispensable in most cases and cannot demonstrate sufficient combat effectiveness when they are needed.

04

Of course, many things cannot be generalized, and not all locations can directly adopt large-sized apartments on impulse. But this direction should not be directly rejected without customer verification. We might as well look at several cases:

The Pengrui No.1 project, a top-tier property located in a non-absolute core area of Guangzhou, has its large-sized apartments of over 500 square meters selling the best; in Poly Yuexi Bay, the largest apartments were snapped up first; for the next project of Shanghai Xintiandi that will enter the market, the customers are now inquiring about the large-sized apartments on the top floors; Vanke Gaofuli has designed different area segments of high, medium and low levels according to different landscape resources, the large-sized apartments on the high zone were sold out first, and the unsold units left later are all small-sized apartments on the low zone.

To be honest, we have seen far too many such cases.

In fact, what an enterprise is really thinking can be clearly seen through its projects. Whether a project is designed to be purely high-end or to have balanced advantages, essentially tests the team's grasp of market demand and trade-offs in commercial dimensions. But what I want to say is: the market increasingly does not need balanced projects, because such assets have already been allocated in the previous cycle. What the current market is looking forward to is vertical positioning, niche targeting, and emotional value — and these are exactly the mainstream trends of the industry.

But surprisingly, such decisions are so elusive. The consensus that has been reached in people's minds will often be compromised and adjusted during the actual implementation process — this is where the complexity of human nature lies, and it is also the greatest charm of execution.

Therefore, strategy determines tactics, and mental strength determines behavior.

"Daring not to build large-sized apartments" seems to be a decision-making mistake, but behind it is the result of the team dealing with the intersection of various complex factors. But this is also the source of opportunities — the market does reward those courageous decisions, allowing this courage to become a consensus known by more and more people. And I believe that these sincerity and courage will eventually be seen by real individuals, who will then vote with their actions.

This article is from WeChat Official Account "Zhen Jialu's Official Account", author: Zhen Jialu, and is published with authorization from 36Kr.