Supply and Demand Lessons from India’s Real Estate Market

Mayur Vamanan, Sr.  Manager, SIOP Practice Friday, June 1, 2012 Like most cities in India, Bangalore experienced a huge boom in real estate during the...

Mayur Vamanan, Sr.  Manager, SIOP Practice
Friday, June 1, 2012

Like most cities in India, Bangalore experienced a huge boom in real estate during the middle of the last decade. Prices doubled (in some cases, tripled!) in a span of five years between 2002 and 2007. The financial crisis of 2008 had its effect in this part of the world as well. There were fewer new residential projects that year, and existing home prices stabilized. With over 100,000 vacant apartments in the city in 2009, my wife and I figured our move to the city would coincide with a “buyer’s market.” When prices nudged slightly higher in 2010, my wife started getting anxious, but I stayed calm – confident in my very basic knowledge of supply-demand economics. When supply outstrips demand, prices must go down. The housing market here, like that in the U.S., was a bubble waiting to burst.

Or was it? When prices continued their upward trend during 2010-11, I began to question my logic and dug deeper into the matter. It turned out that the majority of these 100,000+ vacant apartments were second homes, bought as investments, often by wealthy NRIs (Non Resident Indians) looking to capitalize on Bangalore’s growth. Supply was still far greater than demand and these homeowners were willing to wait it out confident in the eventual rebound. This anomaly in the demand signal for housing created variability which led to a mismatch between supply and demand.

What rings true in real estate, applies to supply chain management as well. Insights into hard-to-explain, and at times counterintuitive, behavior can prove to be a game changer. It is precisely these kind of insights that the members of Chainalytics’ Sales & Operations Variability Consortium (S&OVC) will receive later this year. Every company operates in a unique environment and current descriptive benchmarks mean little across different environments. Demand characteristics, lifecycle stage, inventory policies, forecasting processes, and manufacturing and distribution constraints all define an operating environment. Understanding how effective you are at predicting and responding to variability and other demand characteristics will determine your success in a given environment.

What do S&OVC members and I (circa 2012, having just bought my first home) have in common? Each of us will benefit from actionable insight in the near future.

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