The root method involves comprehensive evaluation
of options in the light of defined objectives; whereas the branch method
involves building up, step-by-step and by small degrees, from the current
situation. Lindblom claimed that the root method was, in fact, not usable for
complex policy questions. His verdict was that the practical individual must
follow the branch approach – applying the science of muddling through.

The residential property
market in India, particularly in the Tier I cities, has remained sluggish
for the past 12 months, with significantly lower sale volumes when compared to
the high absorption rates of 2010. Home loan interest rates now seem to
be at their cyclical highs (but should soon decline) and unforeseen tax levies
have come at a time when the industry is facing its moment of reckoning.

In these uncertain times, the question arises whether strategic
decision-making for residential property developers to improve sales should
follow the root method – a comprehensive evaluation of options, or the branch
approach – a process of muddling through. In a multiple stakeholder environment
with several large uncertainty input parameters, the branch approach seems to be
the instrument of choice.

In adverse market conditions, developers want
to ascertain facts on some key issues. They consider whether they should:

Lower prices in on-going projects

Proceed with construction

Launch new projects at lower prices

Sell non-performing assets
such as land

THE ‘LOGIC’ OF RESIDENTIAL PROPERTY
PRICING

While others require comprehensive evaluation,
determining residential property prices usually entails a trial-and-error
approach. During good times, prices are invented. When the going gets tough,
prices are discovered (hence the term ‘price discovery’). Developers continually
assess the market with trial price levels to increase sales in on-going
projects. To avoid adversely signaling the market (which could lead to a
downward spiral) prices in on-going projects are kept ‘sticky-upward’.

In the first phase, negotiations are held behind closed doors to test
the market’s appetite. If sales do not recover, discounts are offered up-front
on the table. If there is still no perceived recovery, discounts are advertised
to increase visitors to the sales office. At this stage, the market is said to
have witnessed a correction. This is fundamentally a process of ‘muddling
through’, in which residential prices offered by developers in on-going projects
rise like rockets but fall like feathers.