Stock market investment – to play with the bulls. We have all been there, contemplating if we should go there or at least know of someone who plays the game. When it comes to stock market investment, we know it is very important to do our homework. We start with a very small part of our savings, research vigorously before we shimmy the shiny red cloth at the bull. We analyze the market condition, earnings growth of the stock, its debt-to-equity ratio, its price-to-equity ratio and what not. For even a small amount that we are willing to invest, we analyze “data” and rely on “facts”. It is not simply a gut-feeling or because your friend said so. We are extremely scared that we might be bulldozed. We take calculated risks and yet it feels extremely risky.
Real-estate investment – to play with the unknown. A lot of us have considered buying a piece of land or small property, just for investment purposes. Our goal would be to sell it off when it becomes profitable or say a market, and until then reap the rental benefits of the house. This is mostly a person’s second real-estate investment, first being a home that they built for themselves. But, houses aren’t cheap. When the investment is so high, it is obvious that the risk-calculation is also that diligent; but is it?
The decision to buy a house is more people-dependent rather than data-dependent. We do research on the builder/landlord, verify the documents with a lawyer and make sure that we do not fall into a legal mess. We check the proximity and access to public transport, nearest ATMs, hospitals, grocery stores, schools, day-care facilities, religious centres etc., to understand if it is an easy rental attraction. We check if the roads are well-lit, neighbours and closest police stations to make sure if it is safe.
But the most important questions are – How can we check if we will get the right ROI or Rental Rates for the property? How do we understand the supply-demand match of the locality?
Supply and demand in real estate are similar to that of any commodity in the market. When an item is in short supply but the demand is high, prices tend to rise. When the market is flooded with an item and there’s no demand for it, prices fall. But this isn’t easy to balance when it comes to real-estate. Creating more saleable properties takes time, considerable work, and a lot of effort. It’s not possible at all in some cases, and even when it is, it is almost impossible for supply to increase in time to meet consumer demand.
Instead of mentioning the laws of supply and demand, the market is either termed as a buyer’s market or a seller’s market, which functions in a cyclic pattern. In a buyer’s market, supply is surplus, giving buyers the upper hand, and vice-versa for the sellers’ market. People simply take advantage of the cycle while making buying decisions. Investors buy properties when it is in the buyers’ market and sell when it becomes a sellers’ market eventually.
When it comes to understanding the rental price in a particular locality, this is always an owner-dependent decision. A homeowner might be convinced that they deserve a particular rent because they have invested so much, but the market doesn’t function the same way. Whenever a house gets sold out for rent faster, the homeowner often wonders if it is because the demand was high or if the rental price was too low. The decision of rental price becomes more of a judgement call, rather than an unbiased data-led decision. There is no scientific unbiased approach to understand the rental pricing of residential houses. This doesn’t mean there is no data. According to ‘The Economic Survey 2016-17’, just in Bengaluru, almost 60 per cent of the homes are rental. And as per reports, small, medium and large cities had 28 per cent, 36 per cent and 40 per cent of rental housing respectively across classes. Meaning, there are numerous rental homes throughout the micro-localities of the country. Details of those houses such as its rent, size, furnishing status etc., are available in the silo, making it hard to get hold of.
The best solution is to use Machine Learning platform, which will offer insights on the optimal rental rates, suitable furnishing options and ideal locality to give the best possible options for home buyers. This platform can also simulate what-if scenarios to predict the rental demands in the future and the prices for such demand. Since it is a machine learning module, more data we feed to the system, more accurate the predictions will be. The platform will help homebuyers to make informed decisions, eliminating the guesswork and doubts, reducing dependency on third-parties, giving them a hassle-free and a seamless experience while making their investment.
This real estate statistical data science platform can be used to predict where the country would be most likely to add the next new houses. Today, real estate companies are starting to embrace scientific thinking to grow into better data science-led business models. This artificial intelligence intervention in the real estate industry will not only help in predicting prices and demand but also help the industry to expand smartly. With government initiatives such as Smart Cities and Digital India paving way for growth, emerging technologies will help make smart investment decisions for the businesses as well as the consumers.
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.