KOMMERSANT DOM:Summer at a Discount
10 July 2014
Kommersant Dom: Summer at a Discount
Market Demand
In the real estate market summer is the time of discounts, promotional campaigns, bonuses and customer loyalty programmes offered by residential real estate developers. ‘About 65% of Moscow’s developers use discounts on pretty much permanent basis to attract additional clients during any season. In most cases if the whole price is paid up front the buyer may expect to get a 2-5% discount off the list price, ‘ says Metrium Group CEO Maria Litinetskaya. According to her, even greater discounts can be offered in the summer and during the New Year holidays. Usually developers will offer an additional discount at this time of year that averages about 5%. Thus, the total summer discount as a rule amounts to about 7-8%. The absolute maximum is 10%. A discount of more than 10% may be an indication that something is wrong with the project.
‘Customers love getting discounts. Most customers have now come to expect New Year discounts, but summer deals from developers are also popular. How much demand will grow for apartments offered as part of one promotional campaign or another depends on the terms and conditions of the deal and the size of the discount,’ says the head of new development at GK MIC Alexander Engel. According to him, buying an apartment at a discount can really save you between 3 and 5% of the list price. ‘The summer is traditionally regarded as a slow season in the new real estate market in Moscow. Business activity slows down which impacts on the number of deals. So in order to stimulate demand developers often offer a variety of discounts and special deals to customers who haven’t gone off on holiday,’ GK Pioneer’s Head of Marketing and Analytics Alexandra Krzhekova explains. She says that some customers specifically look for summer deals. ‘For some people bargaining over an apartment is more important than the actual purchase and for this category even a 0.5% discount can make a break a deal,’ adds Alexandra Sinilova, head of the developer relations department at IntermarkSavills.
However, OPIN’s marketing director Ksenia Silaeva says that in the urban residential housing segment discounts are offered, as a rule, only for some types of apartments, like two or three room apartments and also for up to business class apartments but not higher than that. ‘Discounts offered by developers is just another way to revive or stimulate interest in a project. However, it’s important to differentiate between formal discounts (3-5%) and significant discounts (10-15%). Higher discounts can draw the attention of prospective customers but they can also make people suspicious about the property on offer: an apartment being offered at a high discount can turn out to be a corner apartment or a dark one, ‘ Olga Tarakanova, head of the urban real estate department at Knight Frank, warns. For instance, she says, when construction is nearing completion developers usually start trying to sell whatever apartments haven’t been sold yet as fast as possible. In this case significant discounts can be offered. Most often information about discounts is passed to real estate agents who then pass it on to prospective customers. ‘Developers regularly announce seasonal discounts and promotional campaigns. The season is just an excuse and summer is no exception. Summer sees both simple discounts off the list price as well as discounts on instalment plans as well as special deals such as discounts for 100% upfront payment, kitchen for free, finishing for free etc.’ says the executive director of Evans Maxim Mokeev. However, he also points out that special deals and discounts hardly ever exceed 150 thousand roubles. ‘Most customers view such offers as a marketing tool. And while in the economy class segment discounts can have an effect, albeit minimal, they’re not likely to be very effective in the more expensive segments. Furthermore, prices for elite housing are being deliberately raised despite the season,’ the expert says.
Deals on the rise
The largest amount of discounts and summer deals are offered by developers in the highly competitive economy and comfort class markets. According to Alexandra Krzhevova, usually paying 100% of the price up front will get you a 1.5 to 3% discount. However in some projects the discount can be higher than that: discounts for apartments in the White Park residential complex are 7% for two and three room apartments, in the Benchmark City residential complex customers are offered 5% off the list price. Another example: this summer GK Pioneer is offering higher than usual discounts for its apartments. The last remaining apartments in the LIFE-Volzhskaya residential complex are being offered at 10% off the list price. Compare that to Welton Park with its 5-10% discounts and Tsaritsino-2 where a two-room apartment can be bought at 9% off the list price. ‘Another project offering interesting summer deals that should be mentioned is LIFE-Mitinskaya. Three-room apartments with turn-key interior design are offered at a 4% discount off the list price plus a parking space for free,’ an expert says. In the meantime according to the head of the marketing and advertising unit at KT SU-N155 Andrey Vorobyev, SU-155 is offering discounts ranging from 5 to 20 % depending on the property.
Some developers give customers a choice. According to deputy CEO for sales at NDV-Real Estate Yana Sosoreva, people buying apartments on the lower floors of the Romashkovo residential complex are saving 10% of the price, however they can choose instead to have their new apartments decorated by the developer. Clients buying a two or three room apartment and a parking space in the underground parking lot get a second parking space for free. TEKTA Group’s marketing director Vartan Pgosyan says that as part of the Apartments at Half Price in Summer campaign when their customers pay 50% of the price up front, they can pay the rest on the instalment plan interest free. ‘It should be noted that in addition to discounts instalment plans are also being aggressively offered in the market, ‘ says deputy CEO for marketing at Peresvet-Invest Irina Kirsanova. For example 8 year instalment plans (until June 2022) are being offered for two and three room apartments in some of the commissioned buildings at the Emerald Hills residential complex.
Similar, albeit smaller, discounts are offered for elite properties. ‘Traditionally we offer summer discounts. In the summer the average market demand slumps as prospective customers are thinking mostly about holidays rather than investments so it’s important to give people an additional incentive to buy. And good savings is a serious incentive,’ says the Sales Director of Rennovation N Timur Sukharev. In particular through the end of summer special deals are being offered for two level townhouses in Knightsbridge Private Park. ‘We’ve taken USD 5 thousand per square metre off the list price so currently townhouses with gardens are starting at USD 25K per square meter (before the discounts went into effect they were offered for USD 30 thousand per square metre), townhouses without gardens start at USD 18 thousand per square metre (the list price is USD 23 thousand),’ the expert says. In the meantime the deputy CEO for key customer relations at SOHO Estate Natalia Golovanova says that DON-Story offers discounts of 6-8% to customers who pay up front for properties at Barrin House, Smolensky De Luxe, Grand Deluxe and Pluschikha. When two apartments are purchased and combined into one at the Patriarshie complex, discounts of up to 10% kick in. According to deputy CEO for sales at GK PIK Vladimir Ascheulov, buyers of expensive properties like such deals as free parking space or free finishing. ‘Free parking spaces are offered primarily in the business and elite segments where one parking space can cost as much as 1-2% of the price of the apartment but is a good bonus while offering the developer a significant competitive advantage,’ the expert notes. Free finishing is more often offered in the affordable real estate segment. Here the idea is that when developer buys in raw materials in bulk the cost of ‘free finishing’ is actually quite low but decorated apartments in this segment are much in demand as they allow the customers to move in as soon as they get the keys. This offer is especially relevant for those who take out a mortgage. Other special deals offered by developers to promote sales include interest free instalment plans. This deal is very convenient for those who don’t want to tie themselves down with a mortgage for many years but who can’t pay the whole price at once.
Working with partners
Some developers not only offer discounts for their own properties but also special terms from their partners. For example, the CEO of Glavmosstroy-Real Estate Pavel Lepish says that the company launched a joint programme with AKB Soyuz and Ingosstrakh for buyers of apartments at the Podolskye Prostory complex in Podolsk and the Central district in Zheleznodorozhny. Through the end of the summer buyers are offered a 2% discount off the list price, a special interest rate of 11.75% per year for any loan and a 5% discount for mortgage insurance. In 2014 the primary real estate market had a lot of loan deals on offer. Thus, through the end of June Sberbank offers all customers of GK PIK that buy apartments in Moscow or Moscow oblast special loan conditions using the 12-12-30 formula whereby a 30 year loan is offered at 12% per year with a 12% down payment. Morton Invest CEO Anton Skorik says GK Morton offers a summer discount of 5.5% off the list price to all buyers taking out a mortgage from one of the banks the company’s partnered up with, which include Sberbank, VTB 24, Svyaz Bank, Rosevrobank and many others. ‘It’s a very popular programme because up to 45% of GK Morton’s apartments get mortgaged. Sales reps note that customers are showing a lot of interest in this programme, however, they add that the deal itself is not really what incentivises people to make the purchase, rather it’s just an additional factor that gives them the final push.
As VP of Khimki-Group Dmitry Kotrovsky notes, professional market players are gradually moving away from direct sales as such deals eventually begin to be ignored by the customers when everyone is offering them. ‘Taking into account the cutthroat competition in the market and how active all the key players are, more and more creativity is needed from the marketing departments with every passing year, ‘ the expert says. He cites the Driver for Three Years campaign as an example. Under the terms of the deal buyers of some private houses in the Olympic Village Novogorsk residential complex get the right to use the services of a professional chauffeur on a daily basis for three years as a bonus. ‘ The campaign generated a huge response in the market segment it was targeted at, i.e. among customers who’d already decided to buy and who were just looking at options. For customers like that the offer of an additional bonus from the developer of a project they’ve already looked at can be extremely effective, ‘ says Dmitry Kotrovsky.
In any case, according to Vladimir Ascheulov, in order to tell a real discount form a perceived one, you have to constantly monitor the prices for the property you’re interested in. Plus if a discount of 15-20% is cited, in all probability it’s some kind of a marketing ploy as the average discount for good properties is between 2 and 5%, with some apartments being offered at 10% off the list price.
Source: Kommersant DOM