Market segmentation is a widely recognised economic and marketing principle. It is defined as a sub-set of a market, which consists of people or organisations with characteristics that cause them to demand similar products and services.
The long and short of real estate investment encompasses the income earning capacity of an asset and its resale value over time. It is from this standpoint that we are going to evaluate the benefits of real estate investment in the short to long term when one does so by targeting a specific segment of the market. It is common knowledge that our market is suffering from a serious shortage of low-cost housing resulting in high rentals emanating due to high demand.
The provision of such housing has immense benefit in the short and long term in meeting demand. One can even argue that demand will remain high in the long term if one uses low-cost housing schemes in advanced economies as case studies. However, this article is mainly targeted at other real estate investments that will continue to give high returns in the long term especially if the economy continues to grow as projected. Therefore in this context market segmentation may be viewed as the grouping of people according to their residential or commercial needs. If we use investment on the basis of homogeneity then one aspect that can ensure a return on investment is the building of campus accommodation that can be afforded by students.
When one takes into account the competitiveness of the local job market coupled with the emphasis that Government has been putting on education, it will not be too difficult to decipher that the construction of blocks of affordable student accommodation will define the real estate of the future.
This to some might sound farfetched considering the number of students that are opting to study abroad. However, this number previously was magnified by lack of resources of institutions resulting in the inability to provide adequate service. This will soon become a thing of the past and our market will start to attract foreign students again increasing demand for accommodation. A few people are looking at developments that attract the ageing and aged in our market.
Some of the reasons for this omission are based on cultural norms. However, some of these norms are being replaced with different practices as some people are adapting different cultures and letting go of practices like retiring to the rural areas. This segment of the market is becoming increasing independent and often does not require the assistance of offspring to survive. Their demand mainly is security and serenity and easy access to essential services.
The construction of clusters providing these basic requirements will most certainly prove valuable in the long term. In our current market the availability of mortgage finance is limited while the demand for it is extremely high. The middle- income and low-income persons are finding it extremely difficult to raise enough capital to buy stands to build or purchase houses.
This opens a huge gap for a segment in the market that is hungry for rent to buy options. Here developers can benefit from maximising on pricing while fulfilling a strategic gap within the market. This is a viable option as the fear for a tenant causing the deterioration of the property is limited because they will have a feeling of shared ownership.
These are a few examples of the market segments that can be utilised in achieving long-term benefit that includes optimal rental and resale value. As far as risk of investment in the local market is concerned, it is critical to understand the degree in which property demands interacts with property supply to determine rental and property prices.
Thus each segment of the market is peculiar on its benefit and risk making it extremely negligent for the author to recommend a particular segment. This article does not provide a conclusive risk benefit analysis but is intended to open up minds to the possibility of different real estate investment possibilities. It is common knowledge that the real estate in our metropolis cannot be put in one box as its benefit and risk profiles are diverse.
Vengai Madzima is a property investment consultant and analyst with Wisdom Properties.
