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The game of prices, the game of thrones


The residential market in the National Capital Region, has been struggling for the past year, with significantly lower sales as compared to 2010. High interest rates and unforeseen tax levies further aggravate the miseries as the industry is already facing testing times.

In these uncertain times, the question arises whether strategic decision-making for residential property developers to improve sales should follow the root method which involves defining an objective, evaluation of options in sync with the objectives or the branch method that instructs step-by-step adjustment to prices by small degrees from the current price.

With a large number of situation variables due to a large number of stakeholders, predictability attenuates and hence the branch method seems to be score over the root method. Hence, pricing for the real estate sector uses the trail and error approach. When the business cycle is in a good phase, the prices are chosen and demanded and when the going gets tough prices are arrived upon by trail and error with constant correction.  Although developers more than often experiment with trial prices in order to check for a boost in sales, they always keep prices of ongoing projects high in order to avoid giving a wrong signal to the market. But during a slow down, the root method is used to discover apt prices as developers chose to invest in more affordable projects that can be pushed into the struggling  market.

The recession of 2009 saw new launches at highly-discounted prices, this led to a significant rise in the absorption rate. Prices of these newly launched project across Tier 1 cities then saw a sharp rise of about 30-40% leading to slow growth in 2011.