Absorption rate of a property development in Morocco: measure it before you phase

The absorption rate is the number of sales per period: so many apartments per month for a residential scheme, so many plots per quarter for a subdivision. It always goes with a second quantity, the remaining stock, meaning what is still for sale.

The ratio of the two gives the most telling indicator: the number of months of stock. It is the time it would take to sell everything if the observed pace held. It can be calculated for one scheme, for a district, or for a product category within a given catchment area.

Three precautions give the figure its meaning:

• the period: an average pace since launch is not the pace of recent months. Schemes often sell faster at the start, while the best units are still available;
• the product: the pace is measured by unit type. An overall figure can hide one product that has sold out and another that is not selling;
• what is being counted: a reservation is not a completed sale. You have to say which of the two you are measuring.

The pace is one of the two answers expected from a market study for a property development, the other being the exit price. One without the other does not support a decision.

A co-ownership building or a subdivision originates from one land title, the parent title. Each apartment and each plot then receives its own title, derived from that parent. Every sale of one of those titles is recorded at the land registry (ANCFCC), with its date.

The method groups registered sales by parent title, then counts them over time. For each competing scheme identified on the cadastral plan, this gives:

• the number of sales per month or per quarter;
• the cumulative sales curve since the first transfer;
• the share of the scheme already sold, when the total number of units is known;
• the same items by size band, and therefore by unit type.

The value of this measurement lies in what it is made of: sales that were actually completed, not commercial statements. It also delivers prices, so that pace and price can be read together.

Its limits need to be understood.

• The gap between reservation and deed. Buyers often reserve during construction; the final deed is only registered once the individual titles have been created. Registered sales can therefore cluster around delivery. The curve then describes the pace of deeds, not the pace of marketing.
• The database is dated. Available data sometimes stops at an earlier year. The most recent schemes appear little, or not at all.
• Schemes not yet titled are invisible. Until the individual titles exist, no sale appears, even if the scheme is largely reserved.
• Resales are mixed with first sales. They have to be separated, otherwise the developer's pace is overstated.

The second method starts from the present. It consists of surveying, on site, the schemes and subdivisions being marketed within the competition area. For each one we record the product, the total number of plots or apartments, the launch date, construction progress, displayed prices and, above all, what is still available, by unit type.

Two readings follow. With a single survey, you know the remaining stock and, if the launch date is reliable, an average pace since the start. With two surveys a few months apart, you measure directly what sold between the two dates: this is the measurement closest to the current pace.

Its limits:

• the information comes from sales offices. It is declarative, and a salesperson has an interest in presenting a scheme that is selling well;
• « reserved » does not mean « sold »: some reservations never reach the deed;
• the stock on display is not always the real stock. A developer may release one phase only and hold the rest back;
• stock can only be observed where access is given. When it cannot, we write that down instead of estimating it.

Neither measurement is enough on its own. Registered sales are solid but late; the field survey is current but fragile. Each checks the other: a scheme described as « almost sold out » whose deeds remain scarce calls for an explanation. The full method for collecting and cleaning the data is set out in the article on the market study for a property development: method, sources and comparables.

Phasing. A phase is sized to sell within a period consistent with the time it takes to build. If the market absorbs a certain number of homes per year in the catchment area, all schemes combined, launching several times that number in one go amounts to building stock. The measured pace sets the size of the first phase and the condition for launching the next one: a level of sales reached, not a date.

Carrying costs in the developer appraisal. As long as a unit is unsold, the scheme carries its cost: finance charges on the sums committed, overheads and marketing costs that keep running, service charges on finished, unsold units. These costs depend directly on the length of the sales period. An appraisal that assumes faster absorption than the market delivers understates its costs, and so overstates its margin and the price it can pay for the land. You can measure the effect by varying the sales period in the developer feasibility calculator; the financing structure is covered in the article on structuring the financing of a real estate development.

Price against speed. A lower price sells faster; a higher price sells more slowly. Neither option is right in principle. The appraisal lets you compare them: on one side the revenue given up by a price cut, on the other the months of carrying cost saved. That costed comparison is the basis of the price revision rule described in the article on pricing the apartments of a new development.

The unit mix. This is often the most useful lesson, and the cheapest to apply while the plans are not yet frozen. If one unit type sells markedly more slowly than the others across all competitors, reducing its share in the scheme is better than discounting it later.

A pace observed elsewhere cannot be transposed as it stands. There are three reasons.

• Your project adds to supply. Demand in the catchment area will be shared between the existing schemes and yours. Each one's pace may fall.
• The competitor is not your product. Location, standing, price, reputation, payment terms: each difference shifts the pace, in a direction that has to be argued.
• The past is not the sales period ahead. Buyers' financing conditions and the general level of prices change; Bank Al-Maghrib's real estate asset price index (IPAI), whose publication also tracks the number of transactions, gives the trend by city.

We therefore present the pace as three scenarios: cautious, central and favourable. Each is tied to an observation, for example the slowest competitor, the median of the competitors, the fastest competitor. Each is then translated into a sales period, then into carrying costs and margin in the appraisal. A scheme that only works in the favourable scenario is information in itself.

The overall reasoning, from revenue to residual land value, is set out in the article on valuing developer land with the residual method and the feasibility appraisal.

The absorption analysis is a chapter of the market study. It includes:

• the map of competing schemes on satellite imagery, with their boundaries;
• for each one, the curve of registered sales by parent title and the field survey sheet, with remaining stock where it can be observed;
• the months-of-stock table by unit type;
• the three pace scenarios for your project and their translation into a sales period;
• the data workbook, line by line, so that every figure can be checked.

The study is quoted on request, according to scope. Where it continues into a price grid, the approach is presented on the page pricing the plots and units of a property development.

The pace measured is other people's. It bounds what is plausible for your project. It does not predict it.

Both sources are imperfect. Registered sales arrive late and the database may stop at an earlier year. The field survey depends on what sales offices are willing to say. For each scheme, the report states which of the two sources supports the figure.

The market may be thin. In an area where only one or two schemes are on sale, the pace rests on very few observations. The catchment area then has to be widened, accepting that the comparison becomes less direct.

Pace is not independent of price. A competitor sold at that pace, at that price, with that product. Change one of the three and the result changes. This is why pace and price are always read together.