How should developers calculate total addressable market (TAM), in a post-COVID-19 world?

[] Increasing digital penetration, high cost of home ownership in metro cities and changing preferences and work policies, are goading the real estate sector to a new normal, where the total addressable market (TAM) is beyond the geographical limits of the micro-market

As real estate projects are heavily influenced by the micro-markets they are located in, should its marketing focus be aimed at tapping buyers in that given market only? This question has become more debatable, given that the COVID-19 pandemic and the resultant increase in remote working, have prompted buyers to purchase homes in far-off locations. In light of this, the sector has been forced to re-evaluate its total addressable market or TAM – a term used in marketing, to assess the revenue opportunity for a product or service.

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There are broadly three ways to calculate TAM:

  • The top-down model by using industry research and reports.
  • The bottom-up model by using data from early selling efforts.
  • The value theory by using conjecture about buyers’ willingness to pay.

In the absence of scientific research, builders depend on their ‘gut feeling’, for project launches. This, compounded by peer pressure, can lead to oversupply in a particular market. Barring some developers who have a national footprint and greater exposure by virtue of this, most other developers believe that their prospective buyers belong only to the geographical location of the concerned project. Hence, they tend to confine their marketing efforts to a given micro market only. Empirical evidence suggests that developers who embraced the idea of wider a TAM are already benefiting. For example, with expat professionals now becoming major demand drivers, builders who participated in overseas property exhibitions earlier, saw participation of NRI buyers doubling in the post-COVID-19 period, compared to those who only tried to tap this segment online. In another case, a Delhi-NCR developer, who organised a property expo in Patna, was able to garner 30% buyers from the city.

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How should developers calculate total addressable market (TAM), in a post-COVID-19 world?

How should developers calculate total addressable market?

According to Ratnesh Dewan, an advertising professional, the TAM has always been a critical challenge for the market research team. The ‘I know my market’ attitude of developers is a big problem. Moreover, it is far easier to calculate the return on investment on marketing spend to target a given geographical location. “However, sales is a function of a brand’s appeal to the buyers and a brand is built around the perception in the minds of people, who may be far greater in numbers than those who actually consume the product. Consequently, a spread- out strategy might cost a bit more initially but in the longer run, the economy of scale balances it in favour of those who build brands on a national level. There are many variables like top-of-the-mind recall and referral buyers, when a developer’s TAM is wider,” explains Dewan.

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Impact of remote working on realty in tier-2 cities

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Amit Modi, director of ABA Corp, does not agree that the TAM is beyond the given micro-market. He maintains that remote working will be a temporary phenomenon that will not remain for long. “I am not convinced that buyers are coming from other geographical locations. Rather, the requirement for residential spaces has increased in the prime locations of major cities. In fact, we are witnessing more transactions in the Rs 80 lakhs to Rs 1.5 crores segment, when compared to the PMAY-qualified projects. I do not think tier-2 cities could be the real demand drivers, because even in the job market, people aspire to come to the metro cities,” says Modi.

What is the TAM for real estate, post-COVID-19?

Developers like Axis Ecorp, on the other hand, believe the trend has changed and the real estate demand has moved from the top metro cities to tourist destinations like Goa. Investors believe that they can find better entry prices, flexibility and sizeable returns. There are good avenues for youngsters beyond the top metro cities. “It is essentially because of the remote working concept that the demand for holiday homes is gaining traction and there are more takers for holiday homes and secondary housing in tier-2 cities,” says Aditya Kushwaha, director and CEO, Axis Ecorp.

Another developer, who did not wish to be named, admitted that the time had come, for flexi-housing across the urban centres of India, whether metro cities or other emerging cities. According to him, the unavailability of land parcels in many of the metro cities was behind the emergence of peripheral locations but in future, this fixation about the key micro-markets of certain select cities could backfire. “In today’s tech-enabled home-buying world, buyers are calculating the cost of living per sq ft as much as businesses are evaluating the cost of doing business per sq ft. With work-from-home emerging as a viable option and urbanisation and migration from villages no longer limited to select metro cities, it is only logical that the home buyer is everywhere and developers have to reach out to a larger TAM,” the builder concludes.


What does total addressable market mean?

Total Addressable Market denotes the maximum market opportunity size for a particular product.

What is TAM and SAM?

While TAM denotes the total demand in the market, SAM (Serviceable Available Market), refers to the portion that can be acquired.

(The writer is CEO, Track2Realty)

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Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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