Pricing the Units in a Small Residential Building: A Worked Example

An illustrative SAR calculation that turns development cost into a price per saleable square metre, spreads a price ladder across floors and tests it against selling costs.

Pricing a building starts with the area you can actually sell, then converts cost into a rate per saleable square metre, then spreads that rate across units by quality of position. This worked example does that arithmetic for a twenty-unit building and then tests the result against market evidence and selling costs. Every figure is an illustrative assumption used to show the method.

The situation

You have built a five-storey residential building in a Saudi city with four apartments per floor, twenty units in total, and you are setting the price list before launch. You need a target margin over total development cost, a defensible ladder of prices between floors, and confidence that selling costs have not been forgotten.

Assumptions (illustrative)

• Gross floor area assumed at 3,600 square metres, with a saleable efficiency of 80 per cent.
• Twenty apartments of equal size, so each unit has the same saleable area.
• Total development cost assumed at SAR 21,600,000, covering land, construction, fees, finance and contingency.
• Target margin of 18 per cent on total development cost before selling costs.
• Sales agency fee assumed at 2.5 per cent of sales revenue, plus a marketing budget of SAR 150,000.
• Comparable evidence in the district suggests achievable pricing of about SAR 8,400 per saleable square metre.

Step 1: Establish the area you can actually sell

Saleable area is 3,600 square metres multiplied by 80 per cent, which is 2,880 square metres. Divided by twenty units, each apartment has 144 saleable square metres.

Pricing must be built on saleable area, not gross floor area. Using the gross figure here would understate the required rate by twenty per cent and produce a price list that never reaches the target margin.

Step 2: Convert cost into a rate per saleable square metre

Total development cost of SAR 21,600,000 divided by 2,880 saleable square metres is SAR 7,500 per square metre.

This is your break-even rate before any profit or selling cost. Every pricing conversation from here is about how far above 7,500 the market will let you sell, which is a question about evidence rather than about ambition.

Step 3: Set the rate needed for the target margin

A margin of 18 per cent on cost means revenue of SAR 21,600,000 multiplied by 1.18, which is SAR 25,488,000. Divided by 2,880 square metres, that is SAR 8,850 per square metre.

The whole building must average 8,850 per square metre to hit the target before selling costs. That average, not the price of any single unit, is what the price list has to deliver.

Step 4: Spread a price ladder across the floors

Set floor rates of SAR 8,400, 8,650, 8,850, 9,050 and 9,300 from the first to the fifth floor. Their average is 44,250 divided by 5, which is SAR 8,850. At 144 square metres per unit, prices run from SAR 1,209,600 on the first floor to SAR 1,339,200 on the fifth, and the twenty units total SAR 25,488,000.

A ladder recognises that units are not equal, protects the good stock from being sold cheaply and keeps the building average at the level your margin requires.

Step 5: Test the ladder against market evidence

If the market only supports SAR 8,400 per square metre across the building, revenue is 2,880 multiplied by 8,400, which is SAR 24,192,000. The margin over cost is SAR 24,192,000 minus SAR 21,600,000, which is SAR 2,592,000, or 12 per cent of cost.

The gap between the rate you need and the rate the market supports is the real finding. Here it is six percentage points of margin, which is a product or cost problem, not a marketing problem.

Step 6: Add selling costs and reprice

At the target revenue of SAR 25,488,000, agency at 2.5 per cent is SAR 637,200 and marketing is SAR 150,000, leaving SAR 24,700,800 and a margin of SAR 3,100,800, or about 14.4 per cent of cost. To keep 18 per cent after selling costs, revenue must rise to about SAR 26,295,000, which is roughly SAR 9,130 per square metre.

Selling costs consumed almost four points of margin. The list price must be set on the net figure, or the appraisal will always be about three to four per cent optimistic.

What changes the answer

• If saleable efficiency is 75 per cent rather than 80, saleable area falls to 2,700 square metres and the break-even rate rises to SAR 8,000.
• A general discount of 3 per cent on the target revenue is about SAR 764,640, which is roughly a fifth of the targeted profit of SAR 3,888,000.
• If the last four units take an extra six months to sell, holding and finance costs reduce the realised margin even at full list prices.
• A payment plan weighted to completion delays cash and adds funding cost, so two sales at the same headline price are not worth the same.
• If comparable evidence is drawn from older buildings, the achievable rate may be understated, which is why the evidence should be recent and local.

What the numbers tell you

• Always price on saleable area, and state the area basis identically everywhere.
• Know your break-even rate per square metre before you discuss any list price.
• Build a ladder so the average carries the margin and the best units are not sold cheapest.
• Deduct selling costs before declaring a margin, because they consume several points of it.
• Where the required rate exceeds the market rate, the answer lies in cost or product, not in a better brochure.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.