Abstract
The Real Estate market, like many other economies, is heavily influenced by consumer demand. The way consumers perceive the market plays a crucial role in shaping your business. Consumer perception is a complex and subjective area of study that varies from one buyer to another. However, it is important not to overlook consumer perception. Economists have developed various models to understand consumer behavior in specific markets. This article aims to analyze key models of consumer behavior in the real estate sector and identify the key factors that influence consumer perception in this industry. Additionally, the article examines the impact of inadequate planning on consumer perception. Furthermore, it delves into the development of infrastructure regulations, with a particular emphasis on the Real Estate (Regulation and Development) Act, 2016, and the remedies provided by the Consumer Protection Act, 2019.
I. Introduction
A. Real Estate Sector
Real estate encompasses both the land and any enduring structures or enhancements, such as residential properties, that are connected to the land, whether they occur naturally or are human-made. It involves the development and management of buildings and their interaction with the surrounding natural environment. In India, the real estate sector has emerged as a significant contributor to the country’s GDP, holding a prominent position.
Policymakers within the government have a crucialrole in formulating appropriatepolicies and regulations that prioritize consumer interests. One important aspect is the provision of clear, unambiguous, and secure guidelines that are easily understandable by the public. These guidelines should enable citizens to assess project quality, verify the legitimacy of projects and companies, and make cost comparisons against market prices.
Real estate businesses and developers should take these factors into account as they shape their business strategies and marketing approaches. By doing so, they can gain a deeper understanding of consumers’ preferences across various aspects. In many cases, customers may hold negative perceptions of development firms due to issues like delayed project handovers, subpar quality, allocation problems, and more. Consequently, it becomes crucial for these firms to address and overcome such challenges, aiming to create a positive and favourable reputation among consumers.
Real estate in India is a global opportunity for investors, developers, and non-resident Indians, owing to altered government policies and increased globalization. After agriculture, India’s second-largest employment sector accounts for around7% of the country’s GDP. The foreign direct investment is currently at a rate ofUS$ 4 billion and the sector is expected to touchUS$ 25 billion in the next 10 years. Progressive planning and implementation are further pushed forth by rapid urbanization, a shift in preference of the urban nuclear families, favourable demographic conditions, heavy migration from rural to urban driven by unemployment, infrastructural changes, hike in levels of income, and sky-rising demand for affordable and comfortable housing. With the investment opportunities on a new level high, the real estate sector is projecting anannual revenues of US$ 180 billion by 2020.
B. Consumer Behavior Models
Consumer Behavior models play a pivotal role in every market, as consumers are the driving force behind the economy. Their perception directly influences market fluctuations. The study of consumer behavior examines how individuals behave within a market, taking into account their needs and desires and how these factors shape their product choices. Before introducing a new product, it is crucial to anticipate and predict consumer reactions toward it. Additionally, understanding consumer behavior helps businesses identify untapped opportunities. In recent years, the global markets, including thereal estate sector, have been significantly impacted by the recession caused by the COVID-19 pandemic. India’s housing market has also undergone notable changes due to the lockdown measures imposed as a response to the pandemic. These changes encompass various aspects, from the process of searching for a home to selecting the appropriate goods. Such interplay of various factors affecting consumer perception in the real estate industry can also be studied with the help of consumer behavior models.Consumer Behaviour models can be broadly classified into two types: Traditional and Modern. The authors shall analyse a few models of consumer perception:
1. Behaviourism Model: This is the most widely used model of consumer behaviourism. As per this model, consumers try to meet their needs by spending the least. Accordingly, businesses and manufacturers may predict sales based on the income of their customers and the price of their products. Companies may believe they have assured a constant level of profit if they offer the cheapest product.
2.Psychoanalytical Model: This model is derived from the theories of Sigmund Freud. According to it, consumers have deep-rooted desires, both conscious and unconscious which shape their consumer purchase patterns. These can be hidden fears, suppressed desires, etc. There is a significant role played by advertisements here as consumers tend to be attracted to that product which stimulates their motives.
3. Black Box Model : According to this model, the four Ps—Product, Price, Place, and Promotion—make up the marketing stimulus. Additional impulses come from significant environmental elements and events, such as those that are connected to politics, culture, economy, and technology. The quality of the product, dealer, brand value, market perception, time, and amount of the transaction are just a few examples of the inputs that go into the buyer’s “black box,” where they are converted into a collection of observable consumer reactions.
Regardless of the model to study consumer purchase behavior, 5 step process of decision-making by the consumer is followed:
Stage 1:Need recognition: In this stage, the buyer’s requirements are triggered by either internal or external events. Therefore, if someone finds a job in a distant city, for instance, he requires a residence. Similarly to this, if a person is getting married he may look for privacy. If his home does not provide him with the privacy he desires, he may think about moving to a new house.
Stage 2:Information search: The customer will start by doing a connected information search at this point. For instance, if a person has decided to purchase a flat, he may browse websites on the internet to get information, search for adverts in newspapers, attend property fairs, or speak with friends to gather information. The extent of the search is determined by the individual’s drive and time constraints.
Stage 3:Evaluation of alternatives: When a buyer is aiming to make a sound investment, maybe once in a lifetime, the buyer will use reasoning rather than responding on instinct. Before making a purchase, most people ask their friends and spouse (if they’re married) for recommendations. A product might have a lot of various qualities, and most purchasers will weigh a number of them, each with varying weights. As a result, a buyer ranks several items.
Stage 4:Purchase decision: During this phase, the customer chooses one of the numerous options he was considering based on anticipated income, price, and product benefits.
Stage 5:Post-purchase behavior: If the customer’s expectations are met at this point, he is satisfied; otherwise, he is unsatisfied if the perceived performance falls short of his needs. Because of the transaction charges (such as stamp duty, which accounts for roughly 6% of the price of the property), it is unfortunately extremely difficult for him to move the house, thus he must make the right decision. If he’s not happy, he can voice his discontent to the Consumer Court and inform other possible customers vocally or through social media.
II. Factors affecting Consumer Behavior in Real Estate Sector
Several aspects affect home purchasing choices. These factors may be divided intothree categories: macro-level, individual-level, and infrastructure-related.
1. The macro-level variables include the GDP growth rate, unemployment rate, interest rates, and economic growth.
2. Age, stage of a person’s life cycle, home size, household income, etc. are all determinants at the individual level.
3. Owners take into account a variety of aspects, including the cost of the home, the location, the neighbourhood’s quality, perceived local safety, proximity to a main road, the size of the house, the number of rooms, the specifications, the layouts, the reputation of the builder, the exhibited facilities, the parking space, the view, etc.
These choices are also impacted by socio-economic conditions of the individual. The age group of family members is also a consideration as different age groups seek different attributes in their home. When searching for a retirement home, elderly individuals consider the availability of essential amenities. Parents with children prioritize communities that offer quality education and have a convenient commute. Health-conscious individuals seek proximity to gardens, stores, local transportation options, and green spaces. While location plays a crucial role, finding a home in the desired area may not always be feasible. However, with increased car ownership, distance is no longer a significant obstacle for people choosing suburban areas. These locations are oftenpreferred due to their distance from city pollution and lower housing costs.
The decision to purchase a house is influenced by various factors, considering that it represents a significant part of one’s life. House prices are determined by multiple variables, including size, location, features, supply, financing rates, and the availability of amenities like gyms and clubs. The price range fluctuates based on factors such as location, neighbourhood, size, specifications, offered facilities, and the current market scenario. Builders cater to different preferences, constructing homes with fewer rooms for affordability or ultra-luxury apartments with spacious interiors.
III. Poor Planning and its Impact on Consumer Perception
The choice of a customer before investing in a property is vested within economic and social-cultural processes which is intertwined with several factors and considerations. The customers’ intention to purchase a housing property comes along with multiple factors such as the price of the house, life-course, and demographic which play a role in influencing the decision to purchase any property. Such decisions are significantly influenced by estate agents/brokers in which consumers engage in search practices, interpret information and internally negotiate their decision. They also contribute to a greater understanding of how the housing market performed and was made to the intended or interested consumers. India’s population is expected to explode manifolds in the coming years. There is a constant need for more comfortable and affordable housing to cater to this growing population. However, with the growing population comes the problem of limited per capita resources available. Land, which is a fixed resource needs to accommodate more and more housing. This often leads to poorly planned congested housing spaces. In such a scenario planning of real estate plays a significant role. Proper planning is a means to make comfortable houses in limited space.
There is an inherent complexity associated with planning and real estate. Dealing with real estate and planning goals as part of a single, overarching task enhances the urban environment. This understanding was proven through thestudy around potential redevelopment locations in Portsmouth (UK). Connectivity is particularly significant from a morphological standpoint. Managing regenerated locations with high potentials, such as urban waterfronts, as well as the added requirement for green space to be built there, presents issues. A real estate-driven approach to planning focuses on the challenge of preserving property value when external circumstances change or enabling growth by business-economic principles. A planning approach to real estate, in turn, indicates the necessity to assess, and if required, rethink, the land use and building laws imposed by the government that guide a prospective refurbishment of established property or site development. Despite such deeply ingrained paradigmatic disparities, compromises between planning practices and the real estate market is attainable through discussion, particularly when realizable win-win circumstances exist. Fortunately, established property valuation theory predicts that environmental and neighbourhood qualities, including image and aesthetics, would rise in value and rent, and that some of these features may be adjusted through design. In this regard, greater collaboration in the design process is likely to result in win-win situations: design well, and a price rise and development activity will follow.
A construction project is considered successful when it is completed within its budget, on schedule, and according to its standards and specifications. Although the success of project management has been established using procurement strategy in construction, there are challenges relating to the way projects have been planned or managed that have led to venture postponements, cost overruns, and delays with low client satisfaction. The current market and its stakeholders have beenaffected by the recent “covid recession”. It produced corporate upheaval, which resulted in joblessness, inflation, a budget deficit, and weak GDP growth.
The rising cost of building is another factor. The higher prices result in higher housing costs, whichdiscourages purchasers from making purchases. The current market and its stakeholders have been affected by the recent “covid recession”. It produced corporate upheaval, which resulted injoblessness, inflation, a budget deficit, and weak GDP growth. Consumers’ perceptions of value about monetary use are a key determinant of real estate project success. It is crucial to think critically about consultative planning to include requirements and customize the needs of stakeholders or intended users of a project.
Customers seek satisfaction and value for their money across the corporate world. The satisfaction level of customers is often characterized by the comfort and accuracy of designs. When purchasing or renting an apartment, apotential customer will review several aspects which would increase his comfort. This may include maintenance cost, utility reliability, and cost incurred in making use of the utilities such as electricity, water, and internet. Along with the longevity and comfort of a flat, quality and authenticity of services are significant and heavily influence customer satisfaction.
Satisfied customers tend to refrain from lodging complaints with businesses. However, it is important to note that customers consistently seek quality as they view their purchases as valuable investments. When assessing the quality of service and the dependability of the billing system being employed, consumers mainlyrely on experience. Satisfactory levels will be lower in the ideal perception when expectations are lower than the experienced quality. Thus,proper planning is the key to attracting consumers in the real estate sector as it is the planning and designing of a home that shapes consumer perception. Hence poor planning directly impacts consumer behaviourism. The result of a growing population is the shrinking of available lands. Lack of space has been a crucial factor in poor planning and congested designs in real estate infrastructure.
In order to develop climate-resilient infrastructure, proper planning plays a crucial role. As the impacts of climate change continue to grow, the risks associated with it also increase. It becomes essential to carefully plan and design infrastructure, considering the potential risks to housing and other structures. This is not only important for achieving low carbon emission goals and sustainable development but also for shaping consumer perception in the real estate sector.
Implementing a cooperative strategy, becomes imperative. However, it is necessary to acknowledge that simply adopting a coordinated approach may not fully address the challenges related to backlog and conflicts in urban environmental provision. Alongside the need for collaboration, there are additional concerns that must be taken into account, such as the potential offered by digitalization.
To ensure the creation of value and the delivery of quality, it is crucial to involve corporate property owners in the urban development decision-making process, particularly during the planning and design stages. This approach would contribute to fostering a robust property investment market and effective management of the built environment. Therefore, a comprehensive understanding of value creation is essential for both public and private authorities to facilitate efficient property investment market functioning and maintain high-quality built environments.
IV. Impact of Institutional and Legislative Framework: Focus on Real Estate (Regulation and Development) Act, 2016
The three factors that are vital in determining the purchasing consideration factor in the real estate sector. The economic consideration factor, livelihood consideration factor, and growth consideration factor determine the courses of future investments. Furthermore, purchasers can be divided into broadly two types namely, an individual investor who focuses on enhancing and catering to livelihood considerations along with economic and growth consideration factors. The second type of purchasers is the return seekers, who are present significantly in places that yield more economic considerations within the anticipated and planned time. The real estate market gives increased returns to purchasers around the country, allowing them to make smarter investment selections and contribute to economic progress. As a result, stronger industrial growth, improved socioeconomic circumstances, strengthened financial system, increased financial leverage, and lending among individuals through various sorts of financial institutions in India flourished.
The Real Estate (Regulation and Development) Act, 2016 (hereafter RERA) is an Act passed in 2016. The primary objective of the act is twofold, first protecting the interest of the home buyers and second increasing investment in the real estate sector. This act introduced several safeguards to ensure the interests of the people investing in home is protected. Real estate is a major source of revenue for the state, but it is also the most volatile business. The task was done in a riskier manner in an industry where builders could not maintain their promises of quality and delivery. The Indian government drafted the RERA bill, which sets limits on builders and assesses all sector shareholders. Not only will the interests of customers be safeguarded during the RERA implementation process, but builders will also benefit from more openness.
In recent times, transparency and clarity in the RERA has enabled separate pricing offers. Transparency fosters trust, which is beneficial for both the parties. Trust is reinforced by transparency which is vital for sustaining any relationship. RERA has succeeded in establishing trust between buyers and sellers and has helped create better relationships which will go a long way in ensuring good growth for the real estate market. The RERA has brought in several changes to incorporate the changing dynamics of real estate sector. We shall briefly look on these in the subsequent section.
- In the past, buyers bought houses and residential properties based on built-up areas set down by the developers including common equipment like loading barriers. During a consumers intent to purchase a residential property, developers must accurately represent, inform and sell the property in accordance and the regulation set down with RERA. As a result, the quotation and/or price of the property per square foot will be a transparent information that would help consumers make realistic and decisive decisions.
- It also requires the developer to offer comprehensive, truthful representation, and open information to the buyers. The builder/developer must offer and inform detailed information on the land and title with ownership reports, all or any existing and foreseeable legal liabilities attached to the property, all easementary rights, common passages and spaces, the developers’ plan to utilize the floor space index, usage of building technology, design rules, etc. This provides the property which provides the buyer with much more clarity.
- According toSection 4(2), of the RERA, the developer shall provide the total number of parking areas/spaces in the project, including the common parking areas. He must also disclose the location and whether they are open or covered garages. If the developer sells a parking space to consumers and/or buyers, RERA mandates that the builder must register the sale of the parking space as a separate unit with the authorities along with a separate allotment letter for the said space.
- Furthermore, RERA underSection (3)(2)(a), registration of properties is not mandatory if it does not exceed 500 square meters or the number of units to be constructed does not exceed eight including all the phases of the project. This has also resulted in numerous lower-costing projects being included in the statutory framework and protections.
A. Market Dynamics of the Real Estate Market
Rapid growth and development are being witnessed in the residential, commercial, and industrial infrastructure and project construction sectors. Real estate development, which was formerly limited to larger/metropolitan areas, is now showing significant improvement in smaller cities and towns due to the availability of bank loans, increased earnings, and an improved standard of life. Between 2010 and 2014, Mumbai, Delhi-National Capital Region (NCR), and Bengaluru accounted for46% of total office space demand in India. In the years 2010-14, this demand increased dramatically in Tier II cities such as Kolkata and Chennai. Delhi-NCR accounted for around30% of the total mall supply in India. Approximately 53% of total mall space demand is expected to come from China.
E-Commerce – Consumers’ views may be produced in two ways when real estate agencies utilize e-commerce to build real estate customers’ impressions from the perspectives of real estate managers. In order to get started, real estate companies can employ marketing as well as provide clients with the pricing and quality of real estate products. Receiving this information can influence real estate clients’ purchasing decisions. Second, by using social media to manage their reputations, real estate companies may develop an image of good customer service and goods prior to the initial contact with clients. To summarise from the managers’ point of view, the study’s major finding is that real estate agents employed e-commerce prominently in advertising to shape clients’ perceptions.
From the consumers’ perspective, understanding of their perceiving the use of newer e-commerce for creating perceptions is vital to create and impact the quality of the information in advertisements. On the hindsight these advertisements or popularly known as ads are crucial to creating customers’ perceptions of the products as well as the services.
B. Remedies under RERA and Consumer Protection Act, 1986
TheConsumer Protection Act, passed in 1986 provides for remedial means for consumers. The consumer forum serves as a forum for consumers to lodge their complaints and get remedy. However, since theRERA Act has come into force, it is being argued that the consumer forum has no jurisdiction regarding the complaints of the consumers. It has been argued several times before the courts as to whether the consumer can claim the benefits and relief under theConsumer Protection Act, 1986, or if there is an alternative remedy available. However, the courts have not been able to maintain a clear stance with regards to the home buyers. This was mainly due to the fact, as argued before the courts, that RERA being a special legislation to control the important matters, the remedy is only limited as per the particular provisions of the Act. Before the enactment of the RERA, the Consumer Forum used to deal with consumers with respect to transactions and remedies of property. After RERA’s enactment, and as confirmed by the Real Estate Tribunal, the Consumer Forum’s jurisdiction continues to address the issues of the consumers and was not barred by the RERA. It was discussed in the following judgments:
M/s Imperia Structures Ltd v Anil Patni & Another – The Supreme Court ruled that the RERA remedial remedies do not exclude complaints under the Consumer Protection Act 1986. This decision explains that customers have the option of litigating a remedy for their property rights through RERA or the Consumer Forum.
M3M India Pvt Ltd v. Dinesh Sharma – It was determined that the remedies offered by RERA and the Consumer Protection Act are complementary in nature and that RERA, notably Section 79 of the Act, will not preclude the commission’s or the Consumer Forum’s authority. The Supreme Court held that the remedies available under the provisions of the Consumer Protection Act were additional remedies over and above those made available under any special statutes and that the availability of an alternate remedy was not a bar to hearing a complaint under the Consumer Protection Act.
V. Conclusion
The Indian economy has experienced remarkable growth over the years and is poised to witness a significant boom in the residential market in the foreseeable future. The real estate industry in India has recognized the immense potential and importance of this expansion, driven by expanding business opportunities and a rising demand for commercial and residential spaces as workers migrate. The construction sector plays a critical role in the comprehensive development of India’s foundational infrastructure, making it an indispensable sector.
In today’s era, consumers have become increasingly informed and conscious when investing in properties. Several key considerations assist them in making decisive decisions, including the developer’s brand reputation, property pricing compared to market value, location, future prospects, potential legal implications, and more. Studies have consistently indicated that consumers exhibit a stronger inclination towards purchasing properties from developers who possess a reputable standing in the market.
This study holds great potential in uncovering avenues for future research and development. The advent of online platforms has greatly enhanced communication, although its effectiveness remains subject to clients’ perceptions of the information provided by real estate agents. While online communication cannot guarantee absolute reliability, this aspect is intrinsic to the dynamics of the market. Nevertheless, the absence of trust and concerns regarding privacy and security persist as crucial factors in every real estate transaction.
About the Authors
Ms. Sukanya Raha is a Legal Executive at PS Group Realty Private Limited.
Ms. Tisa Padhy is a 3rd year BA.LLB (Hons) Student at National Law Institute University, Bhopal, and an Associate Editor at IJPIEL.
Editorial Team
Managing Editor: Naman Anand
Editors-in-Chief: Muskaan Singh & Jhalak Srivastav
Senior Editor: Aribba Siddique
Associate Editor: Tisa Padhy
Junior Editor: Kanishka Bhukya
Preferred Method of Citation
Sukanya Raha and Tisa Padhy, “From Blueprint to Backlash: Impact of Consumer Perception in the Real Estate Market” (IJPIEL, 23 June 2023)
<https://ijpiel.com/index.php/2023/06/21/the-next-step-for-the-paris-agreement-must-be-an-effective-dispute-resolution-mechanism/>
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