How housing prices are set
Announcing new projects can increase land demand in nearby areas, especially if the development enhances the area with amenities and infrastructure
This can vary significantly depending on the location of the project and whether the project addresses the actual requirements of the target clientele. For example, a luxury development in an area largely defined by lowcost housing is unlikely to see much organic demand.
Also, demand will depend on the developer’s brand value and the amenities offered in the project. Even with good brand backing, the right location and appropriateness of the project, a developer must set the ticket sizes of his homes reasonably so as not to be ‘priced out of the market’ — meaning that prices must be in line with similar projects by other developers in the area.
Given the complexity of these factors, it is not surprising that the process of price discovery in the Indian housing sector can often seem arbitrary and opaque. Developers must consider multiple factors to set the price for their properties.
One common strategy used by many — but no means all — developers is to set a base price for their properties but be open to negotiate on it with individual buyers. There is usually more scope for negotiation in the case of projects which are not seeing much sales volumes. Finally, developers often provide discounts or incentives to buyers who purchase earlier in the project’s development cycle. This encourages buyers to commit to purchasing homes before construction is complete, helping developers to improve cash flows and reduce their financial risk.
It is also pertinent to note that the market tends to be selfcorrecting. If developers set excessively high prices, the demand for their properties will be lower than they expected. If you’ve found a good home in the right location, in the right project by the right developer, and the price corresponds to your budget, it is safe to assume that the developer has done his homework and that ‘the price is right’.