One of the most critical aspects to any property development is getting the right sales and marketing strategy in place, yet strangely it is one of the least understood and most neglected elements of the development process.

Why is a financier concerned about marketing? Because if our Borrower / Developer doesn’t have a clear marketing strategy as to how they will repay their debt on completion of the project we get concerned. So we thought we would share some of the better laid plans we have seen in our many years of funding projects.

Most developers focus their efforts on their profit margin, managing their sales values, construction costs and maybe their finance options but fail to identify the alternatives that best suit their product in terms of a sales and marketing strategy, despite it being fundamental to the success of the development and their future cashflow.

We would argue that getting this right is not only critical to the project success but an important part of getting your finance approved. For this reason here are a few recommendations.

“Do your research”: Every property is different so it is critical to gain a proper understanding of the market expectations and be able to explain it to your financier. Set yourself up to understand; who is buying, how is your project different and how will you use this to differentiate your project from the competition, do the product mix and design configurations meet the identified market demand and have you got the right price points? In short, understanding your target market is one of the critical steps towards strong sales performance.

Sales & Marketing Strategy: Having done the research, sit down and plan your strategy. This is the second critical step that should be clearly mapped out before launching the project. The sales and marketing strategy should reflect the learnings from your project research and detail a carefully costed budget, which is designed around the conclusions reached in that process. A financier will expect this budget to take account of the project selling stages ensuring there is an allowance to deal with any problem stock, particularly at completion.

The marketing strategy defines how you will promote the product to potential buyers including media, web sites, marketing collateral and the related budgets.

The sales strategy encompasses everything from selecting the sales channels to ensuring that process including the lines of communication between the developer, buyers, lawyers and financiers are clearly understood. It should include dealing with pricing, discounts and other incentives/terms offered and how they impact the bottom line. Again, having this clearly defined gives confidence to an incoming financier.

Understand the Selling Stages: Most projects sell in stages as they progress through the development process, usually kicking off with “off the plan” success taking advantage of the demand tapped by the marketing campaign with local interest and investors choosing the better-designed floor plans or property with better views/aspect/pricing. The construction period sees a slowing of sales momentum and it is here that a good sales channel can maintain a good flow of contracts. The toughest part of any development is often the push to wrap up the final sales post completion of the project. Close to completion there may be a flurry of sales to buyers who are concerned about missing out or who had difficulty visualising the product off the plan, but sales can then quickly slow or stop. An experienced developer understands that their profit is in those final sales and plans for issues such as unforseen design problems to overcome buyer resistance.

Choosing the right Sales Channel: There are numerous options in this field and again your financier will be keen to see that you done your research and secured a sales channel with the right credentials for your project. Sales channels that can be appropriate over the life of a project include:

Project Marketing Groups: For larger projects and where investor sales need to be made, particularly outside of the surrounding catchment, these groups are an important resource. Fee structures reflect the overheads involved and exceed those of local agents however, this is offset by their significant databases and on-line presence used to drive sales. These groups target investors and seek to achieve high volumes and quick results. Growing in popularity, particularly by major developers for large projects is the use of “off-shore” targeted groups. While the fees can be high due to the costs involved in preparing and presenting to offshore and on-shore seminars, this can be digested because it mitigates risk in your project via the potential for quick sales at high volumes. A key point to keep in mind is how many offshore sales can be counted towards the bank/lenders pre-sales requirements.

Local Agencies: Developers need to appreciate that many local buyers may find it difficult to commit to buying off the plan, making the skill of the agent involved critical. When it comes to fees and targeting local buyers, particularly owner-occupier purchasers in smaller projects, local agents provide a strong option and an appropriately structured commission agreement will help to keep them focussed. Financial Groups: This channel mainly comprises financial planning firms whose clients tend make decisions to purchase based on the projected returns, growth and ownership structures as part of an overall investment strategy. The commission structures are similar to those charged by Project Marketers and they and are often used as an adjunct to these groups, particularly where the product is targeted at investors as well as owner-occupiers.

In House Teams: This can be an effective alternative for larger projects. The positives are that market/buyer intel is retained in-house and is available for future projects while experienced execs with the right expertise and retainer arrangements provide good continuity for buyers. The cost can be high and require a constant flow of projects to be economically viable. To set all of this up for 1 or 2 projects, the 6% you thought was high will start looking cheap. Regardless of which option is used, financiers will require to see an appropriate marketing budget and commission agreement with an appropriate level of commission retained to ensure the staff work to secure settlements.

Sales Personnel: Regardless of the sales channel utilised, it is critical that the sales personnel understand the project, location, and key attractions to secure buyers. While most buyers will make their decision based 20% on logic 80% on emotion, creating a strong presence will ensure satisfied purchasers because their referrals are your best source of repeat buyers.

Pre-Sales: Most banks will require a level of pre-sales measured against their debt exposure in percentage terms, as a pre-condition to construction finance. It is important that this criteria is properly satisfied as Banks will usually only count unconditional contracts with full 10% deposits and limit overseas sales to a maximum of 10-15% of the project by number, being 20-30% of their required sales being from overseas.

Conclusion: The most important message here is that Developers need to have control over the entire sales process and understand how vital it is to the success of the development. Having the right sales and marketing strategy is as important as building the project on time and within budget and Financiers understand this and gain confidence in a developer’s professionalism when presented with a well considered proposal that includes these elements.

This article was written by HoldenCAPITAL. To discuss your project finance requirement please call (07) 3171 4200 or visit www.holdencapital.com.au