In fact, whether the price rises or not is only a result. But grasping this deduction process is the most crucial point. This is a question many people ask me in private messages: if the existing-home delivery model is fully implemented across the board, what kind of impact will it exert on the prices of new residential properties in the future?
Some people believe prices will rise, as they think the overall investment threshold will be raised and the supply of new properties will decrease, so housing prices are bound to go up. Others hold that prices will not rise, since developers have the most urgent demand for capital and will rush to recoup cash, thus launching properties into the market at fair prices without pushing up housing prices. Both logics seem valid on the surface. So will prices rise or not? Actually, I have a clear-cut answer to this question. But what I want to emphasize more is where the entire new residential property track will head in the future.
First of all, I would like to state that in the era of existing-home delivery, all thinking logics are different from the past, so everyone should not view the market with inherent mindsets. When it comes to prices, there have always been two types of prices: the average price of a city, and the price of a single property project, both of which fall into the category of housing price consideration.
Let’s first talk about the average price of a city. Clues can be found from land transfer situations in the next two years. Undoubtedly, this policy will exert an impact on the investment attraction of different cities, so several changes are bound to take place: first, land parcels will become smaller and smaller, thus lowering the overall investment threshold; second, the city center will rarely supply land, and any land supplied there will be of extremely high quality. Facing high land costs, only by launching scarce and high-quality land parcels can developers maintain competitiveness; as for suburban areas, low-floor-area-ratio land parcels are easier to promote, which will be used to build low-density properties, shorten the development cycle and increase the supply of scarce property types.
If these two trends emerge, the average price of new residential properties in a city will rise, which is essentially a supply-side reform. When the overall market cake shrinks, and the “flour” behind every piece of the cake becomes better and scarcer, the overall price of the cake will definitely move upward. This is a change brought about by the supply side, which is what I can foresee in the next two years.
Second, about pricing. Assuming all properties are sold as completed existing homes, and all developers are committed to producing better products, the overall input and cost will be significantly higher than in the past. However, I believe the pricing of new properties in the future market will be divided into two schools: the first school consists of enterprises with clear product strength labels or unique product competitiveness, whose projects have independent pricing power, but such enterprises account for less than 15% of the market share; for the rest, the pricing logic of most enterprises is cost-based pricing, namely land cost plus development cost plus reasonable gross profit, which means the pricing of properties is mainly determined by land cost.
At the same time, the entire pricing strategy in the future will be very similar to the pricing logic of new energy vehicles. The property launch process will be very simple in the future: the community will be fully completed, directly open to the public for viewing, and then customers can purchase. The whole process will be very straightforward, but the pricing will be divided into three tiers: first, there is an average price for the entire project; second, two weeks before the official launch, there may be a preferential subscription price for seed users; two weeks later, the discount will be withdrawn, and the properties will be sold at the original price; if the properties are not sold out after half a year, there will be an inventory clearance discount price to recoup funds.
Many people will ask, will such price cuts affect the pricing of other land parcels and projects? The answer is no, because by then the real estate sector has entered a benign track of product competition. The product strength of the next generation of products will be qualitatively improved compared with the previous generation, and the real estate sector will enter a product strength iteration cycle with a half-year interval.
This model is very similar to that of current new energy vehicles or smartphones: before the new model of mobile phone hits the market, the old model will definitely see a price cut, but this will not hinder the overall pricing logic of the new model, and the cycle repeats. Even so, I still believe that under this model, the pricing of a single new property project will be slightly higher than that now — after all, better products, higher investment, better quality and longer development cycle make such price rise reasonable, appropriate and worthy of support.
Third, what I want to convey is that it does not matter even if prices rise. Why? Because in the overall real estate market, there are a large number of affordable properties — both second-hand properties and unsold new stock properties provide cost-effective housing, and affordable properties are even the mainstream. At the same time, whether housing prices rise or fall is no longer the mainstream focus of public opinion. If you do not believe it, think about it: how long has it been since we paid attention to the so-called average new property price in Shanghai’s real estate market? To be honest, I can hardly recall the relevant data either. Because there is no longer a universal consensus on housing prices, and such a consensus is unnecessary. Everyone only cares about the price fluctuation of their own assets.
In addition, I think the price rise of new properties deserves more support. The price rise at this stage means that the higher price is achieved openly through better quality, stronger capability and more dedicated attitude, which is exactly the symbol of a virtuous cycle of the market — the market provides richer products for different customers to choose from, and everyone gets what they need. As long as housing is classified into the consumption sector, both objective facts and public opinion should accept the diversified price levels and the situation where different customers get what they need.
Then we can think about which segment of the real estate sector in the future can accommodate high-priced products. Undoubtedly, it is the new residential property sector. Therefore, policies in the future will also tend to support new properties to be priced at a higher level. As long as the properties can be sold, the price is reasonable, which is the choice under the free market. Moreover, we should also believe that housing price is, to some extent, a reflection of urban confidence. The emergence of relatively high single-project prices is absolutely good news for this era, and both individuals and the public should feel excited about it.
If the final outcome of the new residential property track is to become better, more expensive and more worthy of investment, the next question is: if the trend goes like this, what changes will it bring to real estate marketing practitioners at present?
For real estate marketing practitioners, the top priority is to acquire the ability to sell high-value products, so they need to get rid of some bad habits first. For example, the commonly used skills in the past such as forcing customers to make quick decisions, misleading customers and sales control will soon become inapplicable in the future. At the same time, four trends may emerge in real estate marketing:
First, the third-party channel for new properties will gradually shrink until it is eliminated. The reason why third-party channels prevailed in the past is essentially that they benefited from the pessimistic dividend of the real estate sector. Under the background of homogeneous products, developers had few effective marketing methods and could only rely on channels, but this situation will change with the arrival of the new cycle. Therefore, I sincerely suggest that practitioners in the channel business make a career transition as soon as possible, and large enterprises such as Beike should also gradually reduce their channel business scale.
Second, the packaging and design of luxury goods will be put on the agenda. I think this will lead to a major reshuffle of the entire real estate advertising industry, and even eliminate more than 50% of advertising companies in the market. After the implementation of existing-home sales, the demand for general packaging will decrease, and most of the packaging work will focus on brand packaging, offline exhibition hall packaging and event packaging. Those mass-produced draft copies made online will lose their applicable scenarios. Real estate advertising companies will increasingly move towards the logic of luxury curation companies, and we are still far from reaching this goal.
Third, a thing will be taken seriously — press conferences. Have you ever thought about why technology companies such as new energy vehicle manufacturers and smartphone makers attach great importance to press conferences, and even plan them as the most important annual brand activities? Essentially, a good press conference can create a hot event and gather huge momentum to realize conversion.
Fourth, master the content system of communicating with customers. The goal is to make all the output content capable of communicating with customers. In the past when the market was booming, many project explanations were just self-talk, which will no longer be allowed in the future market environment.
What will happen to the prices of new residential properties in the future? They will definitely rise, but the new residential property track will also become more and more niche, to the extent that it has little to do with the overall market. When housing returns to the attribute of commodity, price is no longer a sensitive factor, while quality becomes the red line of the industry, and enterprises that do not attach importance to quality will be punished by the market. However, from another perspective, the new residential property sector will become a century-old industry that remains vibrant all the time, since people’s pursuit of a better life is endless. This is the final outcome of the industry, and also the final outcome of almost every real estate practitioner.
This article is from the WeChat Official Account “Zhen Jialu Jun”, author: Zhen Jialu Jun, authorized for release by 36Kr.