Proponents of initial public offering (IPO)-style marketing believe that this strategy creates an artificial scarcity resulting in urgency of decision making for the consumers. They believe that when the customer sees the likelihood of being left out, he decides faster.

Technically speaking, IPO-style allotment is inappropriate for real estate. In IPO for securities, all securities on sale are identical and have similar valuations and offer identical benefits to all purchasers. However, all homes in any given project do not offer same value to all customers. Certain home buyers will never buy a south-facing home – even at steep discounts. While others may see a premium value in it. In the case of securities, allottees are indifferent to the distinctive number of the security certificate they receive. In the case of home, they aren’t. The emotional element in home buying creates an imperfection in the home market. Investment in securities are relatively perfect markets where the only takeaway is profits made by investors.

IPO-style marketing, therefore, can possibly work when potential home buyers largely comprise investors who are looking purely at monetary gains and not looking for any emotional attachment to the home purchase. And secondly, when perceived demand for homes on sale is much larger than the supply. It is only in such a situation that one will see many ‘left-outs’ in the allotment process. And it is the existence of larger number of left-outs that creates value for applicants in an IPO. If everyone is to get an allotment, investors will see no value in IPO-style allotment. If these conditions are not met, it is not worth venturing with this strategy.

Deepesh Salgia is Director, Shapoorji Pallonji Real Estate.

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Myth Series: What is its purpose?

While real estate is among the fastest growing businesses in India, it rarely finds respectable space in curriculums of business schools. Also, there are hardly any case studies available to explain the intricacies of the sector.

For these reasons, many facts and theories floating about real estate follow a ‘common sense-ical logic’. Unfortunately, many of these are misconceptions, myths or even downright false.

The purpose of this series, therefore, is to take one real estate myth in each blog and provide insights on the real issues.