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The
COVID-19 pandemic has shown a light on working environments, particularly the
possibilities of working remotely. Almost 43% of full-time employees in India
want to work remotely even once this crisis has passed, and the economy
reopens. But, is this beneficial for companies? Can working from home save
companies money?
The pandemic
accelerates the shift to remote work
As
most people are aware, since the COVID-19 outbreak, the economy has been on hold. Lockdowns went into effect in March, and
businesses were encouraged to have employees working remotely from home to
maintain social distancing.
While
this was not possible in all industries, the economy’s closure forced many
companies to consider the ways that employees could work remotely. Although
this took some logistical planning, the abundance of technology that we now
have has made it feasible.
However,
what many companies want to know is if having remote workers will save them
money and what other benefits it could provide.
Cost savings of
allowing employees to work from home
There
are lots of ways that remote working can offer valuation businesses cost
savings. Many established firms have already enjoyed savings due to remote
working.
Almost
6 out of 10 businesses identify cost savings as a major benefit of remote
working.
Rent and utilities: If most of your team is working from home, you won’t
need to pay for premises, saving money on rent and utilities.
Food: Whether it is providing a cafeteria service or serving
refreshments during meetings, if you have remote employees, you will
eliminate this cost.
Travelling time and cost: Sixty per cent of the employees usually spend more than
an hour in commute to and from office. Therefore, due to work from home
now, on average, an employee saves 1.47 hours of travel time every day.
This translates to time worth 44 additional working days in a year.
Other potential
benefits of a remote workforce
While
direct money savings are important, there are other benefits associated with
remote working that can save money in the long term.
Improved employee retention
Recruitment
can be one of the biggest headaches for valuation businesses, and it can be
even more frustrating when those carefully sought-out team members decide to
leave.
Working
from home can provide parents with childcare responsibilities flexibility,
while other workers can enjoy an enhanced work-life balance that will help your
business to see an improvement in employee retention.
Increased productivity
While
it requires a certain degree of trust to allow employees to work from home, your
business could benefit from increased productivity. A study found that remote workers are 13% more productive when
compared to their in-office counterparts.
Remote
workers are not in a loud environment and are not distracted by their
co-workers. Additionally, remote workers don’t have the stress of commuting,
which means that they can focus on the task ahead rather than needing time to
calm down after tackling the morning rush hour.
Reduced payroll costs
While
you’re not likely to have happy employees if you want to cut their salaries in
exchange for a more flexible workplace, research shows
that almost one-third of employees would choose to work from home over a pay
raise.
This
means that you can reward your employees for their good performance with the
flexibility of working remotely rather than a pay increase. You can keep
your payroll costs down without compromising productivity.
Reduction in absenteeism
Flexible
scheduling allows your team members to fit their work around any personal
obligations that would otherwise have, resulting in taking a day or two off.
However,
studies have shown that a flexible work schedule also leads to healthier
employees. Remote workers tend to be able to bounce back more quickly from
illness, and there is no risk of one cough or cold traveling through your
entire workforce, should someone fall ill.
Eliminate unnecessary meetings
Most
business owners appreciate that meetings can be a time suck and waste precious
resources. Even with the most stringent of agendas, it is still difficult to
keep everyone on track and organized.
There
are also delays that result from trying to coordinate people from multiple
departments into one venue. With current technology, you can still collaborate,
but your meetings are likely to be better planned and remain on message.
The costs of employees
working from home
Remote
working will need access to software, data and your computer systems. You may
need to make some infrastructure changes to support remote workers and prepare
for any remote technical support issues.
Fortunately,
there are lots of solutions on the market like Evalo,
but you will need to factor this into your costs. You will need to think about
what software and other tools your team will need to work efficiently from
home.
The potential drawbacks
No
solution is 100% perfect, so you need to be aware of the potential drawbacks
before you commit to adopting a remote working team. These include:
It isn’t a good fit for
everyone. Remote working need to be
self-directed and comfortable working with remote technology.
Additionally, your employee need to have a defined space for their home
office and be able to work without distractions.
Employee fears for career
progression. Some employees
may fear remote working may impact their career progression. They may feel
frustrated that they may be overlooked and not have a chance to adequately
showcase their skills since they are out of sight. These employees may
require regular communications via email, phone or even face-to-face meetings to
reassure them.
Data security. Security issues can be easy to solve, but they do
need to be addressed and could be a potential drawback for your company.
Security training will need to be provided for all employees, which will
impact cost savings.
Conclusion
In
the past, working from home was unfeasible for many companies, but today’s
technology has made it easier to make this transition. Having remote workers
offers businesses a number of benefits, including saving money, but some
potential drawbacks need to be explored. Although working from home can save
companies money, there are hidden costs that will need to be assessed.
Every
business is unique, and so you will need to evaluate the benefits and drawbacks
as they apply to your specific business before you make a decision. However, it
is worth considering that the COVID-19 pandemic has brought remote working to
the forefront of employee’s interest, so it is a good idea to start laying the
groundwork to determine if it is feasible for your business after the current
crisis has ended.
For Valuation Firm, Efficiency is just as important for the
profession as it is anywhere. If your valuation firm doesn’t have a reputation
for turning work over at a good pace, your competitors will surely overtake you.
Turnaround times can
almost always be improved by studying the firm’s time management. Setting out
what makes up each aspect of the day, and assessing exactly what needs to
happen and what can be disposed of, can slice hours off each assignment. The
result is a happier set of clients and an improvement in reputation.
1. Cut out unhelpful steps
An analysis of your firm’s procedures
will invariably turn up some steps that simply don’t help the process. Cut them
out.
It’s important to note that having
standard procedures can actually contribute to bad time management. Partners
and administrative staff need to have the freedom to cut out unhelpful steps in
individual cases.
2. Have an error management system
Errors eat up time. It’s true that
they are an anomaly for most firms, meaning that a reasonable excuse can be
presented to the waiting client, but errors are still something to be avoided.
Studying and measuring errors can help in the creation of failsafe procedures,
cutting them out in future.
3. Rotate your Team’s Role
Job rotation is a strategy
where employees rotate between jobs at the same business. Employees
take on new tasks at a different job for a period of time before rotating back
to their original position. With a job rotation system, employees gain
experience and skills by taking on new responsibilities. Job rotations
are meant to promote flexibility, employee engagement, and retention. It
helps you eliminate boredom, encourages development, helps you identify where
the employees work best, and gives you a backup plan if an employee leaves.
4. Identify Training Needs
Performance analysis can
indicate where training is needed within the business, whether it’s with
specific job roles, teams, or individual employees. You’ll then be able to
explore options to determine the skills and topics that should be covered and
find the most appropriate training programs. Trained members can perform
the task much efficiently contributing to the Turnaround Time.
5. Implement Technology
If you feel like you don’t have enough time to do everything you want to do, maybe it’s time to adopt automation software like Evalo. See the video below to check how Evalo, real estate valuation software can help you reduce your TAT.
Valuation firms being
service-based, revenue earned in this profession is based on valuations
completed for work on behalf of their clients. Unfortunately, non-billable
hours are a fact of life for any valuation firm and can take up a significant
amount of time per day. It includes administrative work that is separate from
client work, client addition, billing and collections, and process management
tasks. And this is where valuation office automation can help.
Non-billable tasks are
essential to the maintenance and growth of your valuation firm. But at the same
time, they cost money to execute and consume time that otherwise is used for
earning revenue. It is mainly a problem for small and growing firms, compared
to large practices.
Non-billables are such
a problem that valuers work only 2.5 hours of billable work each day. That
means that when compared to a standard 8-hour workday, the typical valuer only
has a 31% utilization rate.
Here’s the good
news—with today’s advancements in valuation office automation and technology,
it’s entirely possible to reduce the time your firm spends on non-billable
work. It all comes down to having a mix of priority-based planning, advanced
technology/cloud-based apps, and ongoing watchful management.
In this guide, we’ll
take you through:
Why it’s worthwhile to automate your valuation firm
processes
How to implement automation into your valuation office
Why automate valuation firm processes?
Valuers can automate a
significant portion of their work with current technology. It gives your
valuation firm the advantage of serving your clients and attracting new
business more efficiently.
With valuation office
automation and technology, you’re not taking away the human element of the
practice. Instead, you spend less time on time-intensive yet menial tasks and
more time in areas that require your skills and expertise.
Here are a few reasons
why automation matters and how targeting routine valuation firm processes will
benefit your organization. Automation:
Removes room for human error related to duplicate data
entry
Increases valuer satisfaction because they can spend
more time on billable work and other revenue-producing activities
Improves communication and transparency between your
staff and clients
Decreases the overhead costs of staffing and fees
associated with a conventional valuation office
If you’re a small or growing firm, automation levels
the playing field by enabling you to stay competitive on a smaller budget
Will automation replace Valuers?
The short answer is,
“no.” With valuation office automation and technology, you’re not taking away
the human element of the practice. Instead, you’ll spend less time on
time-intensive, tedious tasks and more time on activities that require your
skills and expertise.
How to automate your valuation firm
Automating your
valuation firm might come across as an easier-said-than-done kind of scenario,
but with the right steps in place, the transition can be much easier than you
think. Here are seven steps to consider when adding new automation technologies
into your day-to-day processes.
Choose what to automate:
The key is to start
with one thing at a time. And in particular, start with one thing that you
don’t like. Now, think of all the tasks you’d be a lot happier if you didn’t
have to do.
Evaluate the value of each task
You’ve created a list
of all the things you don’t like doing. The next step is to decide which ones
are good candidates for automation. Does it take a lot of time to do? Is it
repetitive or tedious? Or, is it a necessary task but non-billable? Perhaps
most importantly, is it time-sensitive?
Create
a plan
Suppose you determine
that there are numerous tasks that your valuation firm could benefit from
automating, create a plan of action so that you’re able to tackle changes one
by one. You’ll also need to prioritize implementation as part of your
day-to-day without jeopardizing client experience.
Research
automation tools
Once you’ve
prioritized which processes to automate, conduct research to find the best
solution that fits your needs based on your implementation timeline and
budget. Evalo is an excellent place to start your research.
Develop
a change management plan
Technological change
can be uncomfortable and intimidating for your staff, so make sure they know
the plan and have proper training in place for the most effortless transition.
It’s always better to communicate change early.
Review
and iterate
Although part of the
advantages of implementing automation is that you can “set-it-and-forget-it”,
there will always be an advantage to regularly re-evaluating your processes
over time. There is plenty of opportunity for customizations using automation
tools, and each vendor will offer its unique features, so never be complacent
with your technology. Also, regularly asking for feedback from staff and
clients will help you uncover valuable opportunities for improvement—and
further savings on overhead.
Conclusion: valuation office automation = significant benefits for your firm
Valuation office
automation technology provides limitless opportunities when it comes to helping
you save time on key valuation firm processes. It includes client inward, site
visit management, report template, document storage, client communications,
invoice tracking, and more. By optimizing these areas, you’ll be able to spend
less time doing non-billable tasks. And you’ll spend more time creating revenue
for your valuation firm.
Make a solid plan in
place and take a step-by-step approach to integrate new automation
technologies. Then, you’ll be set up for success.
So take advantage of automation tools. You’ll achieve efficiencies that will help you deliver better experiences for both clients and a better work environment for attorneys. For more information, contact us.
Most people
immediately assume that automating the workflows of valuation processes will
help them save time. It makes sense when you consider that automation does
allow people to complete their work much faster. However, that’s
not all process automation has to offer.
It makes sense to use
the cliché and say “time is money” to justify that. If it saves time, your
company will also save money. That is why most businesses apply it to convince
their firm to invest in valuation process management systems.
Besides saving time
spent on doing specific tasks, workflow and processes automation also help
reduce errors and enable your highly capacitated professionals to
focus their expensive hours on high-priority tasks to keep your firm running
and growing.
Workflow management
systems are also accessible data sources that will allow your
firm to make better and informed decisions.
Why should I automate?
Inefficiency is one of
the most harmful aspects of a business environment. Some reports show that
inefficient workflows can cost up to 30% of your firm’s revenue. That’s
certainly a lot more than you’d pay in an automation system that will help
avoid that inefficiency, right?
Even considering
bulkier workflow systems, costs usually pay for themselves in a short time
after the implementation.
It’s simple
math: how much will you save by automating your valuation
workflows? Is it more or less than what you would pay for the existing system?
If you conclude that it would cost (much) less, you should not even have to
think about it before deciding to automate it.
Keep in mind that if
you rather stay on the safe side, automation is the word—and Evalo is one of
the best valuation process management tools to help you enable it. Why? I will
help you decide by showing you 5 ways to save time (and money) through
automation.
How can I save time
and money automating my workflows?
1. Spending less on people
People are expensive. Hiring an employee is pricey. There are
many additional costs other than just his/her salary. It is pretty logical to
say that you will save money when you shift routine tasks currently performed
by humans to a system.
Automated workflow
systems can handle a wide array of repetitive tasks much better than humans
can. These types of software can manage notifications, data entry, email flows,
and much more.
I’m not saying your
firm should completely replace human employees with machines.
What I’m saying is
that you’ll choose those repetitive tasks and work according to specific
execution standards (and which don’t demand any decision-making or strategic
thinking) and leave them up to your automation system.
By doing that,
you’ll free your actual employees’ time so that they can worry
about strategic aspects directly related to your firm’s core business.
Employees and their time are expensive. You need to make the best out of IT
automation.
2. Making fewer mistakes (and communicating better)
As we’ve mentioned
before, inefficiency can cost your firm a lot of money. Before
automated workflows were available, most manual processes relied solely on
human intelligence to be completed.
That was true for all
tasks, from the most menial, day-to-day routines to high-priority tasks.
However, not only are humans expensive to hire, they’re more prone to
mistakes than automated systems.
Remember when your
mother said that “to make mistakes is human”?
She was right.
Automating workflows allows you to avoid all sorts of dangers.
It is not about your
employees being careless. Even the most careful, dedicated employee will make
mistakes from time to time, especially if his activities are demanding
more than he can handle.
Machines have set
execution standards. They’ll deal with data the way you set them to, every single
time. Not having to rely on human minds or reinforce execution standards
repeatedly are a couple of the reasons why automation drastically
reduces the number of mistakes.
A tiny mistake can
cost your firm lacs of rupees (or sometimes the business). On top of that,
let’s consider the amount of money you’d spend finding and correcting a said
error. That’s a lot more than you wish to spend, right?
3. Making better, well-informed decisions
“In God we trust, all
others (must) bring data”. Can you think of the last time you’ve made a
valuation decision without analyzing and considering data? My guess is: you
can’t.
Making decisions
without considering all available data is a clear path to failure (unless
you’re lucky). The valuation automation tool provides you with valuable
information you wouldn’t extract if you were performing the tasks
manually.
It helps you save time
and enables you to collect and analyze data much faster. The
more high-quality data you have, the greater are the chances of making better
decisions that’ll save your firm a lot of money.
4. Lowering your operational costs
Other than the money
you save on hiring fewer employees, automation can help you save even more.
Automating your workflows allows you to identify redundant, unnecessary
processes and cut them out.
Valuation automation
systems offer monitoring features that allow you to identify any bottlenecks
and waste of time and resources. If you associate this with all the reporting
and analytics possibilities, you’ll be able to find creative ways to
save time and money.
When you automate your
processes, it becomes apparent how much time people spend running
around in circles. It happens because the data was not available when
they needed it. It costs your firm both time and money.
5. Doing more with less :
It has become an
increasingly important aspect for many firms: how can we make more money
(increase the output) while saving time and cutting costs (without reducing the
valuations’ quality)?
If you think
logically, it seems impossible. Improving efficiency and
cutting costs without compromising the output’s quality was, indeed,
practically impossible before automation came along.
Workflow automation
allows your firm to do a lot more with less time, less money,
fewer people, etc. We have to face the facts: workflow automation takes care of
tasks much faster than any human worker could dream of.
It doesn’t mean you
should get rid of all your employees. It just means that their time
must be refocused on areas in which technology cannot replace them. To
learn more about how automation works inside Evalo, click here.
Evalo is designed to help anyone establish a better workflow and enable
processes automation across different firm areas without relying on IT.
Processes automation
helps you save time and money, consequently improving your firm’s results. Find
out how you can do more with (much) less.
Valuation firm
profitability has always been essential to your valuation practice’s success.
But increasing your valuation firm’s profits is now more critical than ever.
This: primarily due to unpredictable 2020 and as we continue adapting to the
impact of COVID-19 on the Valuation industry in 2021. A more profitable
valuation firm has the resources to serve clients better and ensure
compensation for the staff.
In this post, we’ll
provide tips for ways to improve your valuation firm’s operations, increase
revenues, and make more for what you bill. This way, you can learn how to grow
your valuation firm profits and be more successful now and in the future.
How do valuation firms make a profit?
Maintaining healthy valuation firm profitability requires effort, but the concept is straightforward: Valuation firms become profitable when they make more than they spend on overhead costs.
Revenue vs. profitability
We focus a lot on
revenue, which is essential for your valuation firm’s success. But revenue
alone is not the same as valuation firm profitability. Boosting valuation firm
revenues helps, but you need to increase your firm’s net profits to succeed in
the long term.
If you’re increasing
revenue without increasing profitability, you’re leaving money on the table.
For example, if your revenues go up because you’re doing more valuations, the
overhead and administrative costs of doing each valuation is high, which
undercuts your profit margin. To maximize valuation firm profitability, firms
need to balance maximizing revenues with minimizing costs.
What can a Valuation firm do to stay profitable?
To help your valuation firm become or stay profitable, look critically at the ratio between profit and the capital invested. Then, adjust if necessary. Ensuring you’re following best practices regarding your valuation firm’s processes and tracking those efforts. These firm processes include your firm’s operational, billing, and collection rate efficiency. Also, please take a look at your valuation firm’s goals and stay focused on them.
Consider the following
9 tips to improve your valuation firm operations, make more for what you bill,
and be as profitable as possible.
1. Distance yourself from jobs you shouldn’t be doing:
You have a limited amount of time and energy each day. To boost your valuation firm’s profitability, you need to focus your time, energy, and attention on critical work—and delegate the rest.
Unless it’s a task that you enjoy and only you can do, or there’s something that’s non-critical but leads to more profits, you need to let it go. Learning to delegate allows you to work to your full capacity. Delegating might mean leveraging technology and handing off work to non-valuer staff like back-office within your firm. You could even outsource valuation services to peer professionals.
When everyone in your
firm is doing their highest-value work, you maximize revenues while reducing
overhead costs. It makes an excellent recipe for valuation firm
profitability.
2. Use technology:
If your focus is on
boosting profitability, using tools and technology can help your valuation firm
be more efficient. Simultaneously, technology helps with keeping costs low and
freeing up your time to get more business (to bring in more revenue).
Using technology
increases a valuation firm’s revenue by helping firms run more efficiently,
streamlining processes, and making it easier to bill and collect on invoices.
Technology is especially valuable during times of crisis, like having to work
remotely during a pandemic.
Let the statistics speak for themselves:
Many 2020
Trends show, valuation firms using technology brought in more
revenue.
As helpful as
technology can be for increasing valuation firm efficiency and profits,
remember to do your due diligence. There are many technology options to choose
from, and it can be tempting to jump in with every software that crosses your
path.
However, to use
technology to its fullest, you want to be strategic and choose technology that
is as secure as possible and addresses the specific issues your valuation firm
deals with.
3. Automate what you can
If you’re spending a
good portion of your day on non-productive tasks, then you’re missing out on
potential revenue and undercutting your valuation firm’s profit potential. The
2020 Trends indicates that valuers dedicate an average of just
2.5 hours per day on billable work. It proves that most valuers are indeed
missing out on potential profits each day.
You are using technology to automate essential, but non-billable administrative tasks like process management, time and expense tracking, valuation billing, and many more saving your time and effort. With more time to put towards billable work, you can raise your revenues and, ultimately, valuation firm’s profitability.
4. Set clear goals—and stay focused on them
It’s all well and good
to set a general intention of “increasing valuation firm profits,” but vague
goals are more likely to bring unsatisfactory results.
If you’re serious
about growing your valuation firm profitability, take the time to set strategic
goals that are SMART. SMART goals are specific, measurable, achievable,
relevant, and time-bound.
Defined SMART goals give you and your team focus and accountability. Plans also give you tangible targets to measure your progress and results against them. This ties in with our next tip: tracking key metrics.
5. Track key metrics for valuation firm success
You can’t just assume
that your efforts are working. From monthly revenue billed to net overhead,
what gets measured gets managed—so track, evaluate, and adjust accordingly.
Intentionally
monitoring key performance indicators (KPIs) related to valuation firm
profitability provides accountability and data that you can use to make more
informed decisions. For example, if you uncover data that something isn’t
working, don’t be afraid to change it.
When it comes to valuation firm profitability, it could be helpful to track KPIs like your firm’s:
• Manhours per Report (the total number of hours in the workday divided by the total number of billable reports)
• Cost per Report (the total cost per month divided by the total number of billable reports during that month)
• Revenue per Report (total billed amount per month divided by the number of billable reports during that month)
While tracking KPIs is
key to making data-driven decisions with valuation firm profitability in mind,
manually tracking KPIs can be time consuming and counterintuitive. Instead, use
reporting tools to give you the metrics you need to know at a glance. Evalo
Manage’s Valuation Firm Insights Dashboard, for example, makes it easy to
quickly access your firm’s key metrics in one central, easy-to-understand
visual dashboard. These metrics include how many billable valuations your firm
has captured, billed, and collected.
6. Keep your cash flow healthy
Healthy cash flow is
essential for your firm’s financial survival and profitability. If your firm’s
cash flow needs a boost, there are numerous options to consider. For example,
you can look for ways to reduce expenses, follow up on unpaid invoices, or make
it easier for clients to pay you with online and alternative payment options.
7. Leave no billable valuation un-tracked
Un-tracked and
unbilled valuations directly impact valuation firm profitability. A valuer
starts with an eight-hour workday, of which an average of just 2.5 hours are
spent on productive work—narrowing the funnel. Of that time spent on billable
work, only 81% contribute to revenue—narrowing the funnel even further.
Tracking cases, it’s
easy to see where profitability is leaking away from a valuer’s workday. But
closing the gap between billable valuations worked and invoiced can help. A
straightforward way to improve this metric is to use technology to track your
valuations more accurately. Evalo software empowers you to capture completed
valuations, no matter where you’re working. By recording your working
valuations in real-time, you can reduce untracked—and unbilled—valuations.
8. Streamline your collections process
You’ve done the work, and you’ve billed for it. But are you collecting that revenue, or are you leaving money (and valuation firm profits) on the table? On an average 14% of the valuation invoices don’t get paid. When it comes to valuation firm profitability, the key is to collect more of what you bill—but without spending more time on it.
By taking action to
improve the collections process at your valuation firm, you can bring in more
revenue (and, subsequently, profits).
9. Take a client-centred approach
Providing a client-centred experience goes hand-in-hand with running a profitable valuation firm. Specifically, satisfying your clients and giving them a positive experience is critical to your valuation firm’s success, and thus it impacts your valuation firm’s profitability. It means doing good quality valuation work and providing the level of service that they want and need.
How can you know if
your firm is doing an excellent job from a client’s perspective? The first step
is to ask your clients for feedback. Once you have a system for regularly
collecting client feedback, take that feedback and use it to fuel improvement
and fine-tune your firm’s services to give clients what they want.
To learn more about implementing (and measure) a client-centred approach at your valuation firm, you can contact us.
Data monetization has already stepped into
our lives in many ways most commonly known as a stranger tele-calling you on
your personal mobile number and trying to sell you time shares, credit card,
loan or an insurance and the person even mentions your name, and address or
other personal information which may surprise or shock you at times. At times
you may like to know about your reference check and the tele caller may say
that it’s from a database provided to them from their marketing company but
shall never reveal their true source. The data may have been shared in any of
the real or online services providers in the name of registration being
explicitly asked or it was part of a lengthy terms & conditions in fine
print or it could be a company selling your information for a price. The personal
data collected when shared and collated from different online sources may lead
to exposing one’s privacy at risk and can also lead to substantial loss due to
abuse.
Facebook that went into controversy last
year generated $69.7 billion from advertising in 2019, more than 98% of its
total revenue for the year.
“Each day, more household names join the
list of brands suspending advertising on Facebook to protest what they say are the social network’s failures to stop
the spread of hate. On Monday alone, Adidas, HP, and Ford added their names to a list that already had Unilever, The North Face, Coca
Cola, Honda and many others.” Extract from CNN Business, San
Francis -By Rishi Iyengar, CNN Business, Updated
1319 GMT (2119 HKT) July 1, 2020
Data monetization is the process of using
data to increase revenue. The highest-performing and fastest-growing companies
have adopted data monetization and made it an important part of their strategy,
according to McKinsey & Co.
Today about 17 percent of companies have
established data monetization initiatives, a further 12 percent are currently
building prototypes and another 10 percent are still developing a concept. Large companies from retail, services, finance and banking are
leading the way and, in general, data monetization is currently being
implemented by larger companies (as per the leading survey company bi-survey.com)
Direct data monetization involves selling
direct access to your data to third parties. You can sell it in raw form, or
you can sell it in a form that’s already transformed into analysis and insights,
according to sisense.com. Thus, extracting more returns than the actual data
creators and care takers.
Data Monetization, a form of monetization, may refer to the act of generating
measurable economic benefits from available data sources (analytics). Less
commonly, it may also refer to the act of monetizing data services. In the
case of analytics, typically, these benefits accrue as revenue or expense
savings, but may also include market share or corporate market value gains.
Data monetization leverages data generated through business operations,
available exogenous data or content, as well as data associated with individual
actors such as that collected via electronic devices and sensors participating
in the internet of things. (as per Wikipedia)
For example, the ubiquity of the internet
of things is generating location data and other data from sensors and
mobile devices at an ever-increasing rate. Yes, we are talking about GPS &
GIS enabled devices like smart phones.
Who to be or not to be a Data Monetizer
– should be with the primary data owner who is creating it?
In this data driven world there could be
many companies involved in collating data and selling them not benefitting the
data owner but 3rd party buyers who in turn manipulate the
information insights to influence the same data owners in their favor.
However, when this data is collated
against traditional databases, the value and utility of both sources of data
increases, leading to tremendous potential to mine data for social good,
research and discovery, and achievement of business objectives. However, data
should be taken by owner’s consent and benefits too should be bestowed to them accordingly.
Data service with insights
It is the primordial right, most direct data monetization process
option to be with data owner. Data is to be serviced directly to customer or
data owners who have created it. The data could be in any form either raw,
aggregated and the owners mine the data for insights. Owners benefit from receiving insights they derive
those for themselves. Also, they benefit from advanced analytics.
External & Internal Data Synergies
There are many such information available with civic bodies,
public and private entities that can be used for combining internal and external data sources
and applying analytics to provide insights. These insights can be available
directly or provided in form of software applications that to data owner to
sell as an app or a package. The insights are limited to specific datasets or
contexts that the owner wishes to sell.
Data Analytics – platform connecting players as a service
The data analytics should not only benefit the intermediaries but
also data owners. These are more
flexible advanced and exciting way of monetizing data that provides the most
value to customers. Providing features like Portfolio analytics, real time dashboards
, Deep diving into portfolio analysis – enhancing regular real time data
applications. These applications can be interlinked with other departments of
the data owner which would meaningfully interconnect and streamline the
business processes of the data owner. Thus, cutting costs, enhancing efficiency,
revenue and profit margins and giving powerful competitive advantage.
Make sure to choose a software with a future outlook
The software should be capable to handle the current and future data
quantum expected and the number of users, devices for creating and recording
data by the owners.
Check if data is monetizable, scalable and exhaustive
The larger size of data exists
greater is the possibility of
perspectives therefore the software should be more flexible to various formats.
The data monetization should be capable to support a variety of formats from
basic to semi complex formats like Sybase, SQL Server & Oracle to complex enterprise
software like SAP, SAS and data based cloud services and data storage warehouses
like AWS.
Data Monetization has to be robust and nimble
The data monetization is an ongoing process and its platform
should be able to adjust complementing and adopting to contemporary
fluctuations and compatible to other software like API and other changes that data
owner’s may or shall face in changing times of new normal or otherwise and
overcome hurdles seamlessly even at grassroot levels.
Data
monetization should ensure data propriety and be user-friendly
The data
monetization should be simple to operate
its functionalities and also ensure the data propriety is secured or ownership and its benefits are
not lost to any 3rd party.
Empowerment to the data owners
Empowered by AI & ML
based software platform shall promote and enhance the skill efficiencies of the
data owner. This will unleash the hidden
wealth trapped in the data manifolds to its fullest potential. Enabling data
owners to make decisions based on deductive reasoning backed by historical and
current data’s meaningful insights. Thus, building more self-sustainable and
effective data owner’s organisation business future proof.
To know more about Evalo Monetizing Solution, click here.
To perform any task, we as a human follow certain methods or
processes to achieve the desired results in our everyday life. Similarly, when
it comes to handling a machine we give a set of instructions to perform a task.
It should be presented in a language which the machine can understand and it is
called “Software”. Software is a generic term used to describe computer
programs or instructions. There are terms like applications, scripts, and a set
of instructions that are often used to describe software.
Technology makes things better
There arise more complexities and chaos, with an increase in
demand in every field. There is always an urge to make the work simpler with
less human intervention. Technically speaking, by automating the entire work
process to deliver any information on time. The software can drive the computer
machine in maintaining the records, showing quick results, and providing
accurate data.
Do Business really progress with Software
Generally for any business or industry, software plays a key
role in managing every activity and recording data. With the raising of more
software companies and their contribution to countless software, there always
has been a debate on which one serves best and meets user’s needs. Managing
tasks methodically can help any industry to progress and establish a secure
footing in the market.
Try to map software with your business
By understanding the business workflow we can arrive at
defining the problem. Come up with a design plan around any business process or
a problem that needs to be handled and try to map your company’s issues with
the current workflow. Do a complete analysis of how to manage data and try to
bring out possible solutions to those unresolved issues. In this way, we get
clarity on finding out which part of your business needs to be reformed or
facilitated with the new software tool.
Business Metrics play a crucial role
There are certain business metrics that indicate whether a
company has achieved its target in a stipulated time frame. To run a successful
business there involves a complete analysis of the sales, work, and financial
results. The key performance indicators display a measurable value that shows
the progress of a company’s business goals. By tracking the relevant metrics matching
your business goals would help in achieving growth in any business
Finally Adds Profit
When you are making a big investment in a business, you expect
results out of it. Good software can do better in streamlining any business
activities to make more revenues. Tracking activities manually becomes
cumbersome, choose a project management software suitable for your project that
offers different types of reports related to your business. It allows you to
manage different business operations by identifying the pros and cons during
the course of time.
No Pandemic or Recession is permanent. History has enough evidence to prove recovery. However, the question is, Why, When, and Who will drive the Real Estate Recovery process. Few concepts from TheMaslows Theory of Motivation has the clues for the Real Estate Recovery.
Like Oxygen is for a human being, Money is for economic activity. Freely flowing Oxygen and Money will bring about Harmony to human beings and Prosperity for the economy.
The present situation has chocked the money flow in nearly 184 countries as their economies are under lockdown.
None of the earlier pandemics spread was as wide as Corona is, thanks to the globalised economies.
In specific to the Real Estate Sector, the following questions are being discussed widely across several platforms:
Will property prices fall? If yes, by how much.
Will the number of transactions fall? If yes, by how much?
How much time will it take before transactions start increasing?
When will the prices start moving upwards?
What will happen to a massive inventory of about 7.4 Lakh units?
Though these appear to differ between each other, the underlying factor influencing each of the questions is “DEMAND.” While Demand drives every economy, as per Maslow, Demand gets driven, amongst many other factors, predominantly by Needs& Desires of Individuals.
At times of such high levels of uncertainty, Who can probably drive the Recovery? When and how can the recovery begin?
A broad level understanding of the key forces which drive the Demand for a property can help us answer the above questions.
Maslow’s Theory of Motivation in Real Estate Transactions:
As per Maslow’s Theory, the Property purchase is a part of “Self Esteem” Need, which arises only after an Individual fulfills most or all of his physiological, Safety and Love Needs.
On a more in-depth review of the Purchasing behaviour of Individuals, we can realise that there exists a precise classification of behaviour into five stages depending on the Need / Desire parameters. Individuals tend to follow this Pyramid of Need Hierarchy, which eventually manifests itself as Demand for different types of properties.
When buying a property, every individual attempts to satisfy a strong intrinsic underlying Need / Desire.
While this is a highly generalised representation of the hierarchy, a detailed article will be published soon.
Model Developed by Evalo Automation Research Foundation
Gratitude Need – The first property.
Buyers in this category have almost fulfilled their Physiological, Safety, and Love needs and are beginning to realise the Self Esteem Needs. These buyers generally buy property in his/her native town as a token of Gratitude to his/her Parents. Typically in the age bracket of 28-35 yrs. They have very high emotional and sentimental attachment towards that property.
Financial Prudence Need –The Work Place Property.
Buyers in this category are those who generally have a family home for their parents or loved ones. They are away from their home town for work or business and consider paying EMI + Capital appreciation as a financially prudent option than paying rent. Buyers range between 30-40 yrs of age, and they have sentimental attachment towards this property.
Relative Esteem Need cum Desire –Aesthetic Property.
Buyers of this category have crossed the previous two stages and now desire to showcase their successful journey to their long-time Friends&Relatives. Usually, showcased through a property with bigger space, higher configuration, Aesthetic interiors, Artistic fixtures, Branded fittings, superior Wall Paper or Paints, etc. Their age of this buyer typically ranges between 35-45 years.
Buyers of such properties are Individuals who have realised their Intellectual potential and its corresponding value. That individual attempts to quantify the unique potential by attaching an intrinsic value to his associations. He/she begins to establish a direct correlation between his persona and his lifestyle. This buyer tends to be exquisite in everything he associates, starting from Neighbours to cars to children’s schooling to the residence to the office to furniture to flooring to fittings to dress to shoes, etc., virtually everything. He desires to be exquisite. The Property purchase decision is also strongly driven by the desire to be exquisite. They will want their property to be a reflection of their exquisite qualities. Their age generally ranges between 40-48, and they have Materialistic attachment that exists over the property.
Wealth Acceleration Desire – Investor.
These comprise of Affluent Wealthy Individuals.
With all their Needs and Desires fulfilled, they now consider Real Estate Property as yet another investment tool similar to Stocks / Bonds or Commodities.
Aged > 45 years of age, they have Financial Attachment over the property.
All Individuals move upwards in the above “Need” hierarchy until any of the basic needs viz physiological or safety or love needs is breached.
Shift in Need equilibrium during Recession
The US Bureau of Labour Statistics had published an article “Beyond the Numbers” in which “Steve Reed & Malik Crawford” had analysed the End User Spends between 2007-2013 during Real Estate Boom, Recession, and its Recovery phases.
Spends on Food
Spends on Food and in specific Home food had increased considerably during the Recession.
Consumers spent lesser Money on Outside Foods. However, the same returned to original trends once the recovery began.
Spends on Automobiles
As expected, the Sale of new vehicles declined by almost 35% during Recession and eventually recovered.
The Sale of Used Car rose 15% during Recession but eventually fell by 20% during recovery.
Home Ownership
Owners’ equivalent rent is the rent for a property estimated by its owner. This metric is high during the Boom phase and falls during the Recession.
In the above table, Rents have increased during the Recession, indicating that Renting was considered to be a better option than buying a property.
The Owners’ equivalent rent has fallen during the Recession and has continued to fall even during the recovery stage. It could because the Recession understudy is related to the Real Estate Price bubble, and hence the impact could be much more severe than the other sectors.
Recession driven Demand shift and its resultant spend shift are evident from the above charts.
Note
The article above published during 2013-14. Subsequently, the US real estate market recovered in 2014, and new Building Permit issuance witnessed upward movement. Property prices also started moving upwards, as indicated in the below Chart.
Real Estate during Recession
During Recession, a sense of Insecurity creeps in forcing individuals to give up all their higher (esteem) needs/desires and stay focussed on Basic needs and in specific the Safety Needs.
Real estate, being a part of the Esteem needs of an individual, is bound to get severely impacted.
Most individuals, especially those in the lower three layers of the pyramid viz 1. First time Buyer, 2. Work Place Buyer, and 3. Aesthetic buyers will be focussing on securing their job, managing finances, and health than think of buying a property. However, The Forth layer comprising of Exquisite buyers, though not fearful or uncertain, would still prefer to wait and watch.
The 5th Layer viz The Investor generally finds an opportunity during recessionary trends. He is characterised by high levels of liquid assets, having the patience to wait for returns, and above all, is willing to take risks for higher returns. He has the capability, willingness, Knowledge, Patience to Wait for returns, take risks, and above all, the MOTIVATION to multiply his wealth.
Recession offers the best Opportunity to Investors for Wealth Creation.
Unlike stocks, Real Estate Investments supported by a Tangible Asset:
During any Recession, the economy, the individuals, and the stock market are all in a state of shock, and unfortunately, not all can withstand the shock. We saw the likes of General Motors (GM), Chrysler, Lehman Bros filing for Bankruptcy after the Great Recession of 2007-08 inturn, making their stocks worth “0”.
Unlike Stocks or Bonds or any other commodity, the Real Estate Sector is inbuilt with a strong resistance to price fall. In other words, the Property Prices do not fall beyond a particular level. This phenomenon was evident even during the Mother of “Real Estate Recessions” between 2008-13.
The Chart of the UK and Japan demonstrates that real estate prices fell in the range of 25% to 40% before the recovery started.
When the prices start falling, the property market automatically freezes. Many surveys indicated as many as 90% of Sellers choose to retain properties instead of selling at a discounted price. Which, in the short run, will impact supply significantly.
This supply contraction, over a while, will gradually make Buyers raise their offer, and there begins the reversal of a trend.
Real Estate Prices contraction has a limit.
Secondly, the returns from Real Estate prices are much higher than the Stock market returns, especially during the recovery stage. According to Ryan Boykin, though comparing Real Estate Sector and Stock Market is like comparing Apple and Oranges, yet this can help in understanding the behavioural trends during a recovery stage.
From the above, it is evident the Real Estate sector emerges as a better investment option for the “Investors” as it offers higher returns even during the Recession and also provide Price fall insulation along withReal and Tangible asset cushioning.
In specific to India, the industry has been, over the last three years, witnessing Demand slump, Lack of Capital Flows, Liquidity crisis all of which is symbolised by Piling Stocks, Falling new launches and increasing defaults in Construction Sector funding.
Before any Investor starts investing with a desire for wealth creation, he will want reassurance and support from the Government. Many Govts, across the globe, have rolled out recessionary stimulus packages which lays the ideal platform for investors to start operating from.
Government as Enabler:
The Government has to play the most critical role of “Enabler”. Its policies must not only attract Investors but also pep up the Demand from end-users.
To understand the impact, we can consider the tax stimulus, which was introduced in The UK during the Price Bubble recession. The UK property prices were on a free fall during the whole of 2008. Transactions shrunk by nearly 60% and prices fell to be more than 20%. The UK government, as a part of the Stimulus program, waived Property Registration Transaction Tax for 15 months starting Sept 2008 on all properties with the value of GBP 125,000 to GBP 175000.
This small waiver turned around this.
Source: The Surprising Power of tax stimulus to the Housing Market, Micheal Best (Columbia) and Henrik Kleven (Princeton)
The Green trend line is indicating the differential increase in the count of Stimulus driven property transactions in the UK viz a viz the others. The Stimulus has had a magical impact on the transaction.
Government, as an enabler of both Investment and Demand, can:
Roll out Tax reforms to encourage fresh Investment – GST, CGT and Lock-in period relaxation, which can be time-bound and property value-based and will encourage Investors to divert their investments to this sector. Afterall the Real Estate Sector is one of the largest domains for the unskilled labour force in India.
Waive Stamp duty &Regn Charges on properties less than INR 50 Lakhs. Almost 50% of Unsold stock lies in the Affordable Segment.
Health security: Individuals are in a state of uncertainty. Unless an Individual feels secure, he/she will not be willing to invest their savings in Self Esteem needs. The reassurance for free movement must be brought in the minds of individuals.
Job security: This has a wider and severe impact on the Property Demand Function. The fear of job loss or salary cuts is looming large in the minds of the people. While only about 20k are impacted, the whole of 1.3 billion people are in a state of severe economic shock. The Government must encourage diff sectors thru their Associations to retain employees and to reassure them of jobs after the sector opens up.
Conclusion
No Recession is permanent. With the stock market losing its sheen, Real Estate emerges as the safest alternate investment opportunity coupled with the highest ROI. Those individuals who are at the “Investor” Stage of the Property Motivation matrix have the most required Oxygen for economy viz Money.
Supported by incentives from Government, the “Investor” class will kick start the Recovery phase with fresh investments in the Real Estate assets.
The first sign of Real Estate Recovery will emerge after 3-4 months of Govt announcing the Real Estate stimulus package. Which will be evidenced by the increasing number of Registrations owing to fresh investments from Investors.
The Revival of Real estate sector that will be evidenced by increase Flat purchases from the newly launched projects.
While the Recovery can begin with fresh Investment, the revival of the sector can happen only when Demand picks up.
For Demand to pick up, Security Needs of bottom three categories of home buyers viz First time buyer, Work Place Buyer and Aesthetic Buyer have to be restored by the Govt.
Needless to say that the Developers MUST proactively reduce prices of unsold stock to enable demand acceleration.
Krish Sudhakar
Valuation Research Foundation
Disclaimer:
Statements on this blog reflect the author’s personal opinion. They do not represent the views or policies of evalo or any other organisations with whom the author may be associated with. The author has expressed his opinion emanating from his research on the subject topic. The author advices and suggests the readers conduct adequate research and convince themselves on any decisions or actions basis this blog. The author does not accept any liability or responsibility for the actions taken by the readers of this blog based on the information contained therein.
Technology is not new to Indian Valuation Firms. Several sizeable valuation firms have managed vital business problems by automating their processes. Software for managing micro-processes like initiations or assigning cases or raising invoices or generating reports, etc., were built to handle specific needs of that particular valuation firm. Though used only by large firms, technology is not new to the Indian Valuation Industry.
Changing Perception:
We are witnessing a paradigm shift in the recent past. Technology from being a micro business problem solver for larger firms, the software is increasingly getting perceived as a business enabler. This perception change has resulted in technology adoption by all firms, including medium and small-sized firms.
Motivators for Perception Change can be Morethan One Thing
Unlike a decade ago, all Financial Institutions are now fully digitized. Valuation Firms also tend to benefit if they are also digitized as communication becomes more transparent and structured.
The recent advancements have made technology far more accessible to adopt than earlier.
The long-term success stories emanating from developed countries where Valuation software has been in existence for nearly two decades now.
Increased peer competition within the industry
The overhead costs are increasing; however, the margins are diminishing
Increased Regulatory and statutory compliance requirements.
Workforce churn is a significant challenge existing in many industries. The cost associated with recruiting and training a new resource is much higher in the current scenario.
New Technology helps in scaling a business to other geographies with better control.
Need for software realized, but there are Impediments.
Valuation Software – Cost or Investment?
It is a valid question any prudent businessman would try to answer before deciding. Cost in simple terms is an expenditure incurred to sustain or meet day to day needs.
The cost incurred is on a transactional basis and impacts short terms returns. On the other hand, investment refers to those cash outflows incurred with a belief of a strong possibility of future returns. When invested, the gains and benefits spread over some time. Profits could be in the form of cost reduction or business growth or risk reduction or increased controls or a combination of many of those. This Cost or Investment decision needs addressing before deciding on technological adaptation.
Technology is expensive:
It is a widespread belief that technology comes with a considerable price tag. This statement is far too generalized to be classified as factual.
The activities of any Valuation Firm, big or medium or small can get broadly classified into three layers:
Layers of Technology Implementation
The Business Layer comprises all the outside world interactions which a Valuation firm does in the normal course of its functioning. It includes client communications and interactions, reviews, interactions with borrowers, invoice management, and many others.
Process layer includes the internal processes followed by each valuation firm starting from document collection to workforce allocation to site visit completion to report preparation.
While the above two are the science involved in Valuation, the 3rd and most critical “Professional Layer” indicates the “Opinion” of the Valuation. It is in this layer, the Art of Valuation put to use by the Valuation Expert basis his expertise and experience.
There exists a consistent interaction between these three layers in any valuation firm.
The layer the Technology addresses, the complexity of the problems the layer possesses, and the effort required & resources available to solve the problem decide its price. The Business Layer will be carrying the least of the price tags as these solutions are more generalized and applicable to almost all businesses or services. Next in the ladder is the Process Layer. In this layer, the Valuation Process, including report generation, gets managed, which will help directly reduce costs, minimize risks, reduce dependencies on the workforce, etc. It is a problem specific to the valuation industry, which is very niche, and resources available with the know-how is very minimal. Hence this will come with a higher premium than business layer software. The niche of all, Professional Layer will be the costliest of all. This solution developed with Intelligence inbuilt into such as an Automated Valuation Model is a good example for this layer wherein the expertise and experiences of the Valuation Expert get inbuilt into the software. Hence it demands a much higher premium than the rest considering far more investment in superior technologies and resources involved in solving the problem.
The layer-wise segmentation can help in evaluating the price of the software.
Depending on the need, a Valuation firm may choose from the multiple products offered by Evalo catering to each of the above layers. In general, starting to implement technology with Business Layer leads to implementing in Process Layer. Both combined leads to implementing in the Professional Layer as Business & Process Layers feed in the necessary input “The Data.”
Resistance to Change:
Technology adoption is synonymous with Transformational change. During the implementation stage, resistance to change will emerge. The resistance will be two Dimensional.
Resistance at Employee Level generally emerges for the following reasons:
Transparency Fear – Technology helps to manage and control the operations of the employees at the click of a button. It can potentially create a sense of fear in the minds of the employees.
Performance Fear – Technology enables shifting to individual wise performance review. It can help in identifying good performers in the team. It will bring about a sense of uncertainty in the minds of the employees.
Tracking Fear – Site engineers tracked on their whereabouts, are generally wary about using the software. It is uncommon for them to come up with reasons not to use the technology to avoid getting tracked.
Resistance at Firm level
Firstly, every valuation firm is unique in its way. Firms have devised processes and procedures based on their needs and experiences.
Secondly, India is a vast country with a multitude of variations between one state to another and some cases city to city within a state. The variance is very evident from the differences in the format of the reports used within institutions in various geographies and between the institutions.
Unless exclusively built, SAAS products are standardized.
Softwares are built based on generally accepted practices and processes, which is mostly adopted by the majority of players in the Valuation industry. This standardization may, at times, result in deviation from existing processes followed by few Valuation firms and hence resulting in resistance.
Conclusion:
Technology will transform all our lives and businesses.
It will not be inappropriate to even consider software as a partner in growth. Especially with the Corona impact, the need for technology has advanced itself by at least 5-7 years. We have proven instances of long-term advantages of success and also short-term resistance in adaptation. It is advisable to device a transformation plan depending on the current firm’s needs and accordingly chooses the solution layer.
No Pandemic or Recession is permanent. History has enough evidence to prove Recovery. But the question is Why, When and Who will drive the Real Estate Recovery process. Few concepts from Maslow’s Theory of Motivation have the clues for Real Estate Recovery.
Like Oxygen is for a human being, Money is for economic activity. Freely flowing Oxygen and Money will bring about Harmony to human beings and Prosperity for the economy.
The present situation
has chocked the money flow in nearly 184 countries as their economies are under
lockdown.
None of the earlier
pandemics was as widely spread as Corona is, thanks to the globalised economies.
In specific to the
Real Estate Sector, the following questions are being widely discussed across
several platforms:
Will property prices fall? If yes, by how much.
Will the number of transactions fall? If yes, by how much?
How much time will it take before transactions start increasing?
When will the prices start moving upwards?
What will happen to a massive inventory of about 7.4 Lakh units?
Though these appear to differ between each other, the underlying factor influencing each of the questions is “DEMAND”. While Demand drives every economy, as per Maslow, Demand gets driven, amongst many other factors, predominantly by Needs& Desires of Individuals.
At times of such high
levels of Uncertainty, Who can probably drive the Recovery? When and how can the
Recovery begin?
A broad level
understanding of the fundamental forces which drive the Demand for a property
can help us answer the above questions.
Maslow’s Theory of
Motivation in Real Estate Transactions:
As per Maslow’s Theory, the Property purchase is a part of “Self Esteem” Need which arises after an Individual fulfills most or all of his physiological, Safety, and Love Needs.
On a more in-depth review of the purchasing behavior of Individuals, we can realize that there exists a precise classification of the act into five stages depending on the Need / Desire parameters. Individuals tend to follow this Pyramid of Need Hierarchy which eventually manifests itself as Demand for different types of properties.
“When
buying a property, every individual attempts to satisfy a strong intrinsic
underlying Need / Desire.”
While this is a highly
generalized representation of the hierarchy, a detailed article will be
published soon.
Model Developed by
Evalo Automation Research Foundation
Gratitude Need – The
first property.
Buyers in this category have almost fulfilled their Physiological, Safety, and Love needs and are beginning to realize the Self Esteem Needs. These buyers generally choose to buy a property in his/her native town as a token of Gratitude to his/her Parents. Typically in the age bracket of 28-35 yrs. They have very high emotional and sentimental attachment towards that property.
Financial Prudence
Need –The Work Place Property.
Buyers in this category are those who generally have a family home for their parents or loved ones. They are away from their home town for work or business and consider paying EMI + Capital appreciation as a financially prudent option than paying rent. Buyers range between 30-40 yrs of age, and they have sentimental attachment towards this property.
Relative Esteem Need
cum Desire –Aesthetic Property.
Buyers of this category have crossed the previous two stages and now desire to showcase their successful journey to their long-time Friends & Relatives. This is usually showcased through the property with bigger space, higher configuration, Aesthetic interiors, Artistic fixtures, and Branded fittings, superior Wall Paper or Paints, etc. Their age of this buyer typically ranges between 35-45 years.
Buyers of such properties are Individuals who have realised their Intellectual potential and its corresponding value. He/she begins to establish a direct correlation between his persona and his lifestyle would desire the Neighbourhood, residence, office, furniture, flooring, etc., and virtually everything to be a reflection of their exquisite qualities. Their Age generally ranges between 40-48 and Materialistic attachment exists over the property.
Wealth Acceleration
Desire – Investor.
These comprise of Affluent
Wealthy Individuals.
With all their Needs
and Desires fulfilled, they now consider Real Estate Property as yet another
investment tool similar to Stocks / Bonds or Commodities.
Aged > 45 years of
age, they have Financial Attachment over the property.
All Individuals move upwards in the above “Need” hierarchy until, any of the basic needs viz physiological or safety or love needs is breached.
The
shift in Need equilibrium during Recession
The US Bureau of Labour Statistics had published an article “Beyond the Numbers” in which “Steve Reed & Malik Crawford” had analyzed the End User Spends between 2007-2013 during Real Estate Boom, Recession, and its Recovery phases.
Spends on Food
Spends on Food and in specific Home food had increased considerably during the Recession.
Consumers spent lesser Money on Outside Foods. However, the same returned to original trends once the Recovery began.
Spends on Automobiles
As expected, the Sale of new vehicles declined by almost 35% during Recession and eventually recovered.
The Sale of Used Car rose 15% during the Recession but eventually fell by 20% during Recovery.
Home Ownership
Owners’ equivalent rent is the rent for a property estimated by it’s the owner. This metric is high during the Boom phase and falls during the Recession.
In the above table, Rents have increased during the Recession, indicating that Renting was considered to be a better option than buying a property.
The Owners’ equivalent rent has fallen during the Recession and has continued to fall even during the recovery stage. This is because the Recession understudy is related to the Real Estate Price bubble and hence the impact could be much more severe than the other sectors.
Recession driven
Demand shift and its resultant spend shift are clearly evident from the above
charts.
Note
The above article was
published during 2013-14. Subsequently, the US real estate market recovered in
2014, and new Building Permit issuance witnessed upward movement. Property
prices also started moving upwards, as indicated in the below Chart.
Real Estate during
Recession
During the Recession,
a sense of Insecurity creeps in forcing individuals to give up all their higher
(esteem) needs/desires and stay focused on Basic needs and in specific the Safety
Needs.
“Real
estate, being a part of Esteem needs of an individual, is bound to get severely
impacted. “
Most individuals, especially those in the lower three layers of the pyramid viz 1. First time Buyer, 2. Work Place Buyer and 3. Aesthetic buyers will be focused on securing their job, managing finances, and health than think of buying a property. However, The Forth layer comprising of Exquisite buyers, though not fearful or uncertain, would still prefer to wait and watch.
The 5th Layer viz The Investor generally finds an opportunity during recessionary trends. He is characterized by high levels of liquid assets, having the patience to wait for returns, and above all, he is willing to take risks for higher returns. He has the capability, willingness, Knowledge, Patience to Wait for returns, take risks, and above all the MOTIVATION to multiply his wealth.
“Recession
offers the best Opportunity to Investors for Wealth Creation.”
Real Estate
Opportunities during the Recession:
During any Recession, the economy, the individuals, and the stock market are all in a state of shock, and unfortunately, not all can withstand the shock. It is not uncommon to witness several companies/stocks shutting down owing to their inability to withstand the Recessionary Shock.
Unlike Stocks or Bonds or any other commodity, the Real Estate Sector is inbuilt with a strong resistance to price fall. In other words, the Property Prices do not fall beyond a particular level. The same was also observed by Mr. Guy Tcheau & Dr. Norman Miller, in their research titled “Antifragility Investments in a World of Fat-Tailed Risk”.
They observe Quote “Real estate provides a non-trivial anchor to the downside which is largely overlooked in traditional financial models. Whereas the upside is technically unlimited, the downside has a floor.” Unquote.
When the prices start falling, the property market automatically freezes. Many surveys have indicated that as many as 90% of Sellers choose to retain their properties instead of selling at a discounted price. This, in the short run will impact supply significantly.
“This supply contraction, after a while, will gradually make Buyers raise their offer, and there begins the reversal of a trend.
Real
Estate Prices contraction has a limit.”
This phenomenon was evident even during the worst of Real Estate Recession between 2008-13.
Stock markets, on the
other hand, offers very little to no protection in the downside. A stock can
crumble to even zero depending on the Company’s impact from Recession.
Secondly, Mr. Guy Tcheau & Dr. Norman Miller, present empirical evidence to establish the Risk-adjusted Returns from Private Equity in Real Estate Sector is far higher than Bonds and Securities.
From the above, it is
evident the Real Estate sector emerges as a better investment option for the
“Investors” as it offers higher returns even during the Recession and
also provide Price fall insulation along with Real and Tangible asset cushioning.
In specific to India, the industry has over the last three years, witnessing Demand slump, Lack of Capital Flows, Liquidity crisis all of which is symbolized by Piling Stocks, Falling new launches, and increasing defaults in Construction Sector funding.
Before any Investor starts investing with a desire for Wealth creation, he will want reassurance from the Government. Many Govts, across the globe have rolled out recessionary stimulus packages which lays the ideal platform for investors to start operating from.
Government as Enabler:
The Government has to play the most critical role of “Enabler”. Its policies must not only attract Investors but also pep up the demand from end-users.
To understand the impact, we can consider the tax stimulus, which was introduced in the UK during the Price Bubble recession. The UK property prices were on a free fall during the whole of 2008. Transactions shrunk by nearly 60% and prices fell by more than 20%. The UK government, as a part of the Stimulus program, waived Property Registration Transaction Tax for 15 months starting Sept 2008 on all properties with the value of GBP 125,000 to GBP 175000. This small waiver turned around this.
Source: The Surprising Power of tax stimulus to the Housing Market, Micheal Best (Columbia) and Henrik Kleven (Princeton)
The Green trend line
is indicating the differential increase in the count of Stimulus driven
property transactions in the UK viz a viz the others. The Stimulus has had a
magical impact on the transaction.
Government, as an
enabler of both Investment and Demand, can:
Roll out Tax reforms to encourage new Investment – GST, CGT, and Lock-in period relaxation. This can be time-bound and property value-based. This will encourage Investors to divert their investments to this sector. After all the Real Estate Sector is one of the largest domains for the unskilled labor force in India.
Waive Stamp duty & Registration Charges on properties less than INR 50 Lakhs. Almost 50% of the unsold stock lies in the Affordable Segment.
Health security: Individuals are in a state of Uncertainty. Unless an Individual feels secure, he/she will not be willing to invest their savings in Self Esteem needs. The reassurance for free movement must be brought in the minds of individuals.
Job security: This has a broader and severe impact on the Property Demand Function. The fear of job loss or salary cuts is looming large in the minds of the people. While only about 20k are impacted, the whole of 1.3 billion people are in a state of severe economic shock. The Government must encourage different sectors through their Associations to retain employees and to reassure them of jobs after the industry opens up.
Conclusion
No Recession is permanent. With the stock market losing its sheen, Real Estate emerges as the safest alternate investment opportunity coupled with the highest ROI. Those individuals who are at the “Investor” Stage of the Property Motivation matrix have the most required Oxygen for economy viz Money.
“Supported
by incentives from Government, the “Investor” class will kick start
the Recovery phase with new investments in the Real Estate assets. “
The first sign of Real
Estate Recovery will emerge after 3-4 months of Govt announcing the Real Estate
stimulus package. This will be evidenced by the increasing number of
Registrations owing to fresh investments from Investors.
The Revival of the Real estate sector will be evidenced by increase Flat purchases from the newly launched projects.
While the Recovery can
begin with new Investment, the revival of the sector can happen only when
Demand picks up.
“For Demand to pick up, Security Needs of bottom three categories of home buyers viz First time buyer, Work Place Buyer, and Aesthetic Buyer have to be restored by the Govt.”
Needless to say that
the Developers MUST proactively reduce prices of unsold stock to enable demand
acceleration.
Krish Sudhakar Valuation Research Foundation
Disclaimer:
Statements on this blog reflect the author’s personal opinion. They do not represent the views or policies of evalo or any other organisations with whom the author may be associated with. The author has expressed his opinion emanating from his research on the subject topic. The author advises and suggests the readers conduct adequate research and convince themselves on any decisions or actions basis this blog. The author does not accept any liability or responsibility for the actions taken by the readers of this blog based on the information contained therein.
