By Joseph Wong

There is an unsavoury real estate development behaviour that seems to repeat itself over and over again. Year after year, many seasoned industry players fall into the exact same trap, rushing to build in micro-markets that are already suffocating under excess inventory. This classic case of herd mentality is one of the most persistent and costly failures in modern property development.

When a pioneer developer launches a project in an underrated location and hits a home run, surrounding landowners and competing firms take notice. Likewise, when a specific property type trends, everyone else rushes to jump on the bandwagon. This scenario was witnessed in Johor during the height of the overhang issue in 2022 when uncompleted unsold units hit a high of 19,390 units in the southern state. Thankfully, the number has significantly reduced since then.

Instead of analysing why that specific project succeeded or measuring the actual depth of remaining demand, latecomers rush to launch near-identical developments in the same immediate radius. The result is a textbook case of the blind leading the blind, where copycat projects vie for a finite pool of buyers, driving down margins, inflating vacancy rates and eroding long-term asset value.

When the pioneer development sells out rapidly, it usually captures a specific, unmet wave of local demand. Perhaps there was a severe shortage of modern high-rise apartments in that neighbourhood or a sudden influx of corporate workers seeking transit-oriented homes. The first mover satisfies that immediate, high-intent buyer pool.

Subsequent developers look at those initial sales figures and mistake a temporary surge in absorption for infinite local demand. They fail to realise that by the time their own project breaks ground later, the finite pool of eager buyers has already been largely exhausted.

Success for Project A does not create automatic demand for Projects B, C or D. It often consumes the very demand those later projects were relying on. This raises the question: how do multi-million-dollar corporations with dedicated market research teams fall into this trap? The answer comes down to psychological biases and flawed market feasibility frameworks.

1. Social proof over real data: Boardrooms are not immune to FOMO (Fear of Missing Out). When corporate leadership sees competitors acquiring land and launching towers in a specific precinct, staying away feels like a strategic failure. The herd offers safety in numbers, that is, if everyone is building there, the logic goes, it must be the right place to be.

2. Flawed feasibility studies: Many market studies rely heavily on historical sales data rather than forward-looking pipeline analysis. A feasibility study might highlight that 1,200 units were sold in the area over the past 18 months, concluding that demand is strong. However, if it fails to factor in the 4,000 units currently under construction across five rival sites, the study paints a dangerously misleading picture. Moreover, developers are reluctant to provide actual figures to competitors. What is taken up does not necessarily translate to actual sales. Loan rejections, change of mind and buyers suffering job loss can occur, hence providing a false impression of the actual market scenario.

3. Copy-paste product design: When developers follow the herd into a location, they rarely innovate on the product. If the pioneer project succeeded with 800 sq ft two-bedroom units, most follower launches nearly identical layouts, finishes and price points. Instead of expanding the buyer pool by offering something distinct, they force themselves into direct head-to-head competition for the exact same demographic.

The real cost of overbuilding

When supply dramatically outpaces genuine end-user demand, the consequences cascade through the entire real estate ecosystem:

• Margin erosion through discounting: To meet bank sales thresholds, competing developers inevitably enter price wars. Subsidised furnishings, waived legal fees and heavy cash rebates become necessary to move inventory, destroying projected profit margins.
• The ghost tower legacy: Projects launched at the tail end of a cycle often suffer from prolonged overhangs with dozens or hundreds of unsold units sitting empty for years post-completion, burdening the developer with ongoing maintenance fees.
• Depressed secondary market value: When an area is overbuilt, early buyers struggle to rent or resell their properties at projected yields. A saturated rental market leads to falling rents, which damages the reputation of the precinct and alienates investors. The same principle applies to property prices which either stagnate, or worse, decline due to newer discounted homes entering the vicinity.

Breaking the cycle

Navigating away from the herd mentality requires discipline, rigorous data evaluation and a willingness to chart an independent path. The industry's most resilient developers adhere to three core principles:

1. Shift from historical demand to pipeline analysis: Smart developers don't just look at past transactions. They map out every planning submission, land deal and site clearing within a 3km to 5km radius. Knowing what is coming down the line is far more critical than knowing what sold last year.

2. Radical product differentiation: If a developer chooses to enter an area with existing competition, they must refuse to launch a copycat product. If the market is flooded with compact investor-focused units, they look at multi-generational family layouts, owner-occupier townhomes or specialised commercial spaces. Differentiation creates its own demand.

3. Knowing when to say no: The hardest decision in property development is walking away from a land deal that looks attractive on paper simply because the micro-market is nearing saturation. True market leaders recognise that preserving capital for underserved, emerging locations yields far higher returns than fighting for scraps in an overbuilt hotspot.

Real estate development is a game of long cycles. Building into an overbuilt market because everyone else is doing it is not a strategy but a slow-motion mistake.

By recognising that early sales velocity in a neighbourhood is a finite resource rather than a perpetual guarantee, developers can break free from the herd mentality. The future belongs to those who look beyond immediate hype, analyse real supply pipelines and have the courage to build where the market is going, not where it has already been.

This article was first published in StarBiz 7.

Stay ahead of the crowd and enjoy fresh insights on real estate, property development and lifestyle trends when you subscribe to our newsletter and follow us on social media.