A hidden discount costs a developer more than an open price cut

When borrowing costs rose sharply from 2022, French developers faced a choice that every seller of an unfinished product meets sooner or later: reduce the price, or keep the price and add something to the deal. Most of the industry, Valcerne included at first, chose the second. We paid buyers' notary fees, added a parking space, fitted the kitchen or contributed to moving costs. My position, after trying both, is that disguised incentives cost more than an open price reduction, and that a developer cutting prices in a building should extend the cut to the households who have already reserved there.

I do not claim that every incentive is dishonest or that every promotion misleads. A developer may reasonably offer a kitchen package as a priced option, and a buyer may prefer it. My argument concerns incentives used to defend a published price grid that no longer reflects what the homes will sell for.

What a free parking space conceals

The attraction of an incentive is that the price on the grid stays where it was, and several people want that. The sales team avoids telling earlier buyers that their neighbours paid less. The finance team keeps comparable prices high for the valuation of remaining stock. The bank valuer assessing a buyer's loan sees a price consistent with the building's launch. And the brochure keeps its headline.

Each of those benefits has a cost that lands somewhere else. A buyer offered paid notary fees on a €300,000 flat receives a discount of perhaps €7,000 to €8,000, but the deed records the full price, so the household borrows against a figure the market did not pay. If it sells within a few years, the resale price will be compared with a deed that overstated the home's value. Lenders are not naïve about this. In a falling market they begin to discount new-build valuations, which pushes the cost back on to every buyer in the building, including those who received nothing.

There is also the question of what the buyer understands. An incentive bundle makes comparison harder by design. A household weighing two programmes has to value a parking space, a fitted kitchen and a notary contribution against a price per square metre, and few households do that well. I spent my first years selling apartments from a sales pavilion, and I know how persuasive a free parking space is at the moment of reservation. It is far less persuasive two years later, when the owner learns what the same flat sold for without it.

In 2023 our own figures settled the matter for me. On programmes where we relied on incentives, cancellations before the deed ran above 30%, and the time needed to sell the remaining stock lengthened every quarter. Buyers who had reserved at the old grid heard about the incentives from neighbours and began asking whether they should withdraw and reserve again on better terms.

Earlier buyers are the first audience for a price cut

That autumn we cut the grid by an average of 8% on three programmes in Lyon's eastern suburbs and in Grenoble, and gave the same reduction to the 163 households who had already reserved or signed there, taking it off their remaining construction-stage instalments. It cost about €3.9 million and reduced gross margin on those programmes from 11.6% to 7.9%. Our chief financial officer opposed the extension because of the precedent, and her objection was a serious one. Cancellations on the three programmes then fell from 31% to 12%, and the 249 homes still unsold were all reserved within fifteen months.

The point I would make to other developers concerns whom a price cut is for. Most discussion treats it as a message to prospective buyers. In an off-plan building, the first audience is the households who have already committed, because they will live beside the newcomers, compare deeds and talk to each other at the handover. A cut that leaves them out invites cancellations from those who have not yet signed the deed and resentment from those who have. Extending it turns the cut from a betrayal into a policy.

Valcerne made that a group rule in 2024: if comparable lots in a building are reduced within twelve months of a buyer's reservation, that buyer receives the difference. Over two years the rule cost €2.2 million across eleven programmes. It also changed behaviour inside the company. A regional team that wants a cut now has to price the rebate owed to earlier buyers, which makes cuts rarer and better considered, and makes the original grid more carefully set.

Telling a building who its neighbours will be

The downturn also changed whom we sold to. Sales of whole buildings, or parts of buildings, to social landlords and institutional investors rose from about a third of our reservations to more than half. Those sales are negotiated below the retail grid, which is reasonable: the purchaser takes many homes at once, commits early and spares us the marketing cost. They do raise a question developers have tended to avoid, which is what to tell the households buying individually in the same building.

My answer is the tenure, though not the price. A household reserving a flat should know whether the building will also contain social rented homes or homes let by an institutional landlord, and roughly how many. Most buyers do not object, and many welcome a mixed building. What they object to is finding out at the handover, or from the landlord's letting advertisement. Since 2024 our sales files have stated each building's tenure mix as it stands at reservation, updated if it changes before the deed. The negotiated prices of block sales remain confidential, because they are commercially sensitive for the purchasers as well as for us.

This approach does not suit every circumstance. A developer with a strong balance sheet, in a market expected to recover quickly, might rationally hold its prices and wait. One selling small volumes in a single town may find that an open cut sets a local reference point it cannot recover from. And an open cut extended to earlier buyers needs a finance director willing to accept a precedent. I would not ask another company to copy our rule unchanged.

I would ask its board to look at a single comparison: the cancellation rate before the deed on programmes sold with incentives, against the rate on programmes sold at an honest price. If the first is higher, the incentives are not protecting the price. They are postponing the day the company admits what the price is.