Is It Important for a Real Estate Developer to be Big Shot to Deliver Better Equity Investment Option
Real Estate Myth #IV: Is it important for a real estate developer to be big shot to deliver better equity investment option
A general assessment tells us that it is better to approach a more famous, geographically diversified developer than a local one, as he would give a better equity investment option. How much of this holds true?
A criteria to access investment potential of any equity stock is the competitive advantage enjoyed by the company. In case of a real estate sector, the competitive advantage lies in things like conceptual skills, architectural skills, and construction skills, however, these skills can be outsourced. Having local knowledge is a must as it gives a true competitive advantage to the developer. This would include the information on local climate, market, building codes & regulations, among others.
“It’s very important to understand the local climate otherwise, the built up structure wouldn’t survive in the long run. Take an example of apple, it can only be grown in cold climate. Same thing applies to the buildings, only the local material can sustain in the long run. This can only be understood by a person who has lived and studied in a similar area and not by an international developer or an outsourcing company,” says Jayesh Dave, Managing Director of Jayraj Group.
Thus, it is almost impossible for any developer to attain expertise in local knowledge across large number of geographical locations. Furthermore, due to multiple number of activities involved in the real estate operations, pre-defined processes can’t guarantee any success
Due to this reason, expanding operations beyond a geographical location doesn’t necessarily result in superior returns for the developer. It can however, increase risk of the businesses. Hence for a portfolio investor, developers present locally would offer a better opportunity than a big shot and an established developer.