Pricing the apartments of a new development in Morocco: the floor, orientation and unit-type grid

Applying one price per square metre to every apartment in a building always ends the same way. The best units go in the first weeks, because they are underpriced. The weakest ones stay in stock, because they are overpriced. The developer sells quickly what could have fetched more, and carries for a long time what should have been priced lower.

The grid corrects this. It spreads the average price so that every apartment is, at its price, as attractive as its neighbour. The aim is not to raise the average price. It is to sell the whole stock at a steady pace, from the courtyard-facing ground floors to the top floors.

Pricing is one link in a chain. The market study of the project provides the exit price and the sales pace. The grid allocates that price between the units. The developer appraisal then shows what the scheme can bear. If one link is wrong, so are the ones after it.

This is the most common mistake, and the most expensive one. Three areas are in circulation for the same apartment:

• the title area: the area that will appear on the unit's land title once the building has been divided into co-ownership lots. It is the area behind the sales registered at the land registry;
• the living area: the usable interior area, excluding terraces, balconies and gardens;
• the weighted area: the living area plus terraces and private gardens counted for a fraction of their size.

A price per square metre depends entirely on the area used as the divisor. Take one apartment sold at one price: measured on living area alone, its price per square metre looks high; measured on an area that includes a large terrace, it looks low. Nothing has changed except the divisor.

The risk is concrete. If the comparables are expressed on title area and the scheme is priced on living area, the base price is wrong before the first coefficient is applied. Listings add a further difficulty: they rarely state which area they quote.

Our rule: the reference area is written at the top of the grid, with its definition and the share applied to terraces and gardens. Comparables are converted to that same area before any comparison. When a comparable cannot be converted for lack of information, it is flagged and carries less weight.

The base price is the price per square metre of the scheme's « neutral » apartment: mid-level floor, average orientation, no particular view, the most common unit type. It does not come from the cost price, nor from the price one would like to achieve. It comes from the market study, which cross-checks three independent sources:

• sales registered at the land registry (ANCFCC) in recent schemes within the catchment area, updated to the study date using Bank Al-Maghrib's real estate asset price index (IPAI);
• prices displayed by competing schemes and portal listings. These are asking prices: an explicit negotiation discount is applied to them;
• the price reference of the tax administration (Direction générale des impôts), quoted with its edition, as a benchmark by zone and not as a market price.

That work, from cleaning the data to weighting the sources, is covered in the article on the method behind a market study for a property development.

One point of method matters here: the base price must be drawn from comparable schemes, meaning new-build, of similar standing and with similar specifications. An older apartment in the same district tells you about local purchasing power; it does not set the price of new-build.

Each coefficient expresses a difference that buyers perceive and agree to pay for, or expect to be paid for. A coefficient of 1.00 means « same as the base apartment ». Above it, a premium; below it, a discount. Their values are parameters to be calibrated on the project's own market, never constants that hold everywhere.

• Floor. With a lift, price generally rises with the floor: more light, less noise, fewer overlooking windows. Without a lift, the logic reverses above the first few levels. The ground floor is handled separately: discounted if it faces the street, valued upward if it opens onto a private garden.
• Orientation and sunlight. Well-exposed living rooms command a price. What counts is the orientation of the living room, not that of the building's facade.
• View. The complex's green space, the sea or an open outlook on one side; a blank wall, a plant room or a close facing building on the other.
• Position. Corner apartment with dual aspect, through unit, street side or courtyard side, proximity to the lift or the refuse room.
• Unit type. Small apartments sell for more per square metre than large ones, because their total price stays within reach of more buyers. The unit-type coefficient prevents large apartments from being overpriced.
• Terrace and private garden. There are two ways to handle them: include them in the weighted area, or give them a coefficient. Not both, or the advantage is counted twice.
• Top floor. It often combines the view, the terrace and the absence of a neighbour above. It carries its own premium, provided the roof waterproofing and insulation live up to the price asked.

The price of an apartment is therefore: reference area × base price × product of the coefficients.

Parking spaces and storage rooms are priced separately. They are distinct products, sold by the unit, whose price does not depend on the size of the apartment. Folding them into the price per square metre makes the grid unreadable and distorts the comparison with competitors who sell them separately.

How are the coefficients calibrated? By observation: price gaps between floors in competing schemes' price lists, gaps found in the registered sales of a single building, the order in which competitors' stock sold. Where observation is missing, the coefficient stays close to 1.00 and the method note says so.

Illustrative example, figures for teaching purposes only. The base price, the coefficients and the terrace weighting below are chosen to show the calculation. They describe no market and must not be reused as they stand.

Assumptions: base price of MAD 10,000 per square metre of weighted area; terraces counted at half their size; parking outside the grid.

Three things to read. Apartment A carries two discounts, floor and orientation, but its small size offsets them almost entirely: it comes out very close to the base price. Apartment C has the best coefficients in the building, yet its price per square metre stays close to that of B, because its unit type pulls it down. Finally, C's terrace is already paid for through the weighted area: it appears in no coefficient.

In a real grid these prices are then rounded, and the calculation is run for every unit in the scheme.

Once every apartment is priced, you add them up. That sum, plus parking spaces and storage rooms, is the grid revenue. It is compared with the revenue assumption in the developer appraisal, the one used to decide on the scheme and to set the acceptable price for the land.

The two figures must coincide on a like-for-like basis: same reference area, same scope (with or without parking), and the same tax treatment, since a developer appraisal is reasoned net of tax. If they diverge, there are two cases.

• The grid exceeds the appraisal. The coefficients, weighted by area, average above 1.00: the scheme is being offered at more than the market study supports. The coefficients are recalibrated so that their average returns to 1.00.
• The grid falls short of the appraisal. Either the coefficients are too cautious, or the appraisal rested on an average price the market does not confirm. In the second case it is the appraisal that has to be corrected, and the margin with it.

The rule is to correct one or the other knowing which, never both blindly. Inflating every price by the same percentage to « get back to the number » amounts to replacing the market study with a wish.

You can test what a gap in the average price does to the margin and to the residual land value with the developer feasibility calculator. The full reasoning is set out in the article on the residual method of land valuation.

A scheme does not sell at the same price from the first day to the last. Three phases stand out.

• Launch. The buyer commits off plan, well before delivery, and expects something in return. The launch price is the lowest in the life of the scheme, and it applies to part of the stock only.
• During construction. The building rises, the show apartment can be visited, perceived risk falls. Prices move up in steps.
• Delivery. The product is finished and visible. This is the highest price, on a stock that should be as small as possible.

The gap between these phases is not a standard: it is calibrated on what competing schemes practise and on what time costs the developer.

The revision rule is written before launch, not under pressure. It compares actual sales with the pace expected by the study, over a period fixed in advance. If a unit type sells faster than expected, its price moves up one step on the remaining stock. If it sells more slowly, the cause is looked for first: the product, the layout, the sales effort, and only then the price. Revision is done by unit type and by building, never across the board.

That rule assumes you know the expected pace. This is the subject of the article on the absorption rate of a property development.

The pricing of a scheme is delivered in three forms:

• the price grid, apartment by apartment, in a workbook where every coefficient is visible and editable;
• the method note: reference area, origin of the base price, justification of each coefficient, reconciliation with the developer appraisal;
• the prices by phase and the revision rule, with the tracking table (available, reserved, sold) needed to apply it.

The assignment is quoted on request, according to scope: number of units, number of unit types, and whether a recent market study already exists. It is presented on the page pricing the plots and units of a property development.

A grid does not create demand. It allocates an average price between units. If the market does not accept that average, the best allocation changes nothing: the scheme will sell slowly, however carefully the coefficients were set.

Coefficients are estimates. They rest on gaps observed elsewhere, in buildings that are not yours. The first weeks of sales are the only direct measurement, which is why the revision rule is part of the method.

The data has its flaws. Registered prices are declared prices. Listings are asking prices, unverified. In a district where few new schemes have sold, the base price rests on a small number of references, and the method note says so.

The grid does not fix the product. A poor layout, badly oriented living rooms or too many large apartments show up in the grid, but are solved at design stage. That is a reason to carry out the pricing before the plans are frozen.