Local authorities may use surge pricing when selling affordable housing in Hyderabad. The central government’s plan to provide housing to one million households within the next few years is likely to elicit great demand from buyers keen to own their first home. Already the government has seen the benefits of surge pricing when selling railway tickets, just because the railways are a government undertaking does not forfeit them from making a profit. Surge pricing allows industries to which they are introduced to become profitable and more efficiently allows the market to decide the price of the product or service being sold.
While many may be aghast at using such a mechanism to sell homes, doing to shall not only create greater demand for property in Hyderabad but will also allow local authorities to earn greater revenue than they would earn if apartments in Hyderabad are sold at a fixed price. Such a proposal, however, shall work best for affordable homes, luxury apartments in Hyderabad are not likely to lead to higher revenues for developers if such homes are sold using surge pricing.
Surge pricing allows the market to decide the price of a product or service by steadily increasing the price of the product or service as demand for the same increases. The price increases for real estate in Hyderabad should surge pricing be employed will allow homes to be valued higher than they would be if sold conventionally. As a rough example consider new projects in Hyderabad aimed at lower-middle-class households. Of 200 units in such a development all of which would be conventionally priced at 16 lakhs, the first 50 flats may be sold at 15 lakhs each, the 50 after that may be sold for 16 lakhs per unit, the 50 afterwards may be sold for 17 lakhs each and the remaining 50 flats may be sold for 18 lakhs each.
While through conventional methods a local government or one of the top builders in Hyderabad may have been able to earn revenue of 32 crores or 16 lakhs each for 200 flats, using surge pricing such a development would generate 33 crores revenue for a builder or the local government. Market forces would decide how valuable such upcoming projects in Hyderabad are since buyers who purchase at the highest price point will set the market rate for all those units which were sold at a lower price point. The first batch of such projects would be sold easily as the market mechanism shall allow buyers to discern that the units being sold are priced below the market value.
Once the first tier of such apartments in Hyderabad has been bought, the second tier is more likely to be bought as the new residential apartments in Hyderabad are assured of being occupied by residents and families. As demand for unit’s increases due to the lower initial price, surge pricing comes to the play and drives prices higher. Depending upon earlier demand of nearby properties developers or local authorities can set price points as they wish and extensively advertise the same.
As conventional price mechanisms face challenges, surge pricing is likely to be more widely applied to various products and services. While certain top builders in Hyderabad already employ pricing strategies similar to surge pricing, an overt marketing campaign advertising surge pricing has not captured the imagination of builders and developers in Hyderabad.