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What is 'spillover demand' in real estate?

New Delhi: In real estate investment circles, we often hear the term 'spillover demand' or 'spillover effect'. It is a very important concept and serious real estate investors must have a clear grasp of it.

India TV News Desk [ Updated: April 14, 2014 16:21 IST ]
what is spillover demand in real estate
what is spillover demand in real estate

New Delhi: In real estate investment circles, we often hear the term 'spillover demand' or 'spillover effect'. It is a very important concept and serious real estate investors must have a clear grasp of it. Basically, the spillover effect in real estate pertains to the impact that a certain event or series of events in a locality has on adjoining localities.

 
The term spillover demand is most often used when a certain location is either reaching saturation point in terms of development potential, has begun commanding high property rates because of high demand, or both. When this happens, budget-bound home seekers who are interested in this area because of its location benefits or the desirability of the neighborhood are forced to look for options in the immediate vicinity. This is spillover demand.
 
This is a predictable process with which both real estate developers and property investors are very familiar. Developers study the locality's surrounding areas and analyze them for possible land acquisition and development potential. Builders with sufficient vision will have acquired surrounding land parcels well before the original location has reached its 'popularity peak'.
 
There is an obvious 'first mover' advantage for developers who sense and act on such opportunities well before the actual spillover demand hits the ground. Land prices tend to be lower, and the available plots tend to be of larger sizes. This enables them to plan larger projects at a future stage, which make for better brand positioning and also higher leverage when it comes to influencing the overall development of the area.
 

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