Real estate pricing techniques may transcend classic economic theory

This is of immediate relevance, as we recently held a pre-launch event, and for one of our projects the demand was so overwhelming we received firm orders for three times the number of units available. It is fairly common for our projects to sell out even before the launch, and each time we’re faced with the question of whether and by how much to raise the price.

Overwhelming demand for a project would seem to indicate that we’ve underpriced, and therefore raising the price is rational, but how much should we raise the price by? Classic economic theory states that we should raise the price to extract the maximum economic value, so the price is raised to a level that causes some potential buyers to drop out, until their number is equal to the number of units available.

In practice, we don’t do this. Our normal response is not to raise the price at all despite indications of very strong demand. Why would we do this and not collect every last baht we can?

Well, we’re a company that has been in business for 15 years, and our plans are to build a company that will be in business for at least 150 years more. Unlike smaller private developers that may only exist for the life of a single project or two, we need to take a wider and longer outlook.

And as a large company, we are one of the top sellers of condominiums in Thailand, so we have a significant role in the market, the economy and society that a smaller company just doesn’t have.

We are very aware that many of our customers are young and just starting out. Owning real estate is the most important mechanism by which most people build the wealth that allows them security and freedom later in life. Many of our customers will be buying their first property and starting to climb that ladder of wealth in an Ananda property. It doesn’t help them if they have to pay at the absolute top of the market, and it doesn’t help them become stable and prosperous members of society if we extract the highest possible price.

But surely our only responsibility is to our shareholders? Well, we believe that if our customers earn a positive return from buying an Ananda property, it builds the Ananda brand, whereas if customers end up owning a property with “negative equity”, that will damage the brand. 

Having the reputation that “no one loses money buying an Ideo” has immense economic value for the company that will be manifest in the next several hundred projects we launch over many years and will vastly outweigh the small amount of theoretical value we leave on the table in any single project.

We take the brand seriously, as it’s a key competitive advantage in the market. 

The brand, and our stewardship of it, is a key reason for our rise to being one of the top sellers of condominiums in the country while maintaining one of the lowest ratios of sales expenses to presales in the industry.

The value that’s created in the brand by not charging the maximum possible price on any single project will materialise across dozens, even hundreds of projects in real tangible increases in sales rates and decreases in sales costs for the company. 

And the value of that, in our calculation, exceeds the temporary monetary gain that could be achieved from any individual project – despite what classical economic theory might say.