Guide
How to measure absorption properly
Absorption is units contracted in a period as a share of units released and available in that period. Almost every disagreement about absorption is definitional — what counts as sold, what counts as released, and over what period — so the definition must be fixed before the number is useful.
The four choices that decide your number
| Choice | Options | Effect |
|---|---|---|
| What counts as sold | Reservation, contract, or paid down payment | Reservations inflate the rate; cancellations arrive later |
| What counts as available | All project units, released units, or actively marketed units | The narrower the denominator, the higher the rate |
| Period | Monthly, quarterly, since release | Monthly is operational; quarterly is reportable; since-release hides the trend |
| Segment | Whole project, phase, unit type, price band | Project-level absorption hides the phase that has stopped selling |
The reading that matters
A single absorption number tells you almost nothing. The comparison that drives decisions is absorption of this phase against its own plan, and against the previous phase at the same point after release. That is what separates a slow month from a pricing problem.
Segment it by unit type before concluding anything. It is common for a project at a healthy overall rate to have one unit type absorbing almost nothing — which is a mix problem, not a price problem, and a price cut would be the wrong response.
Acting on it
Above plan and accelerating: the release is underpriced or too small — raise price on the next tranche rather than the current one. Below plan with high traffic and low conversion: price or plan is wrong at that point. Below plan with low traffic: it is a demand or positioning problem, and discounting will not fix it.
Frequently asked questions
- Should cancellations be netted off?
- Yes, in the period they occur, and the gross and net figures should both be visible. A rate reported gross of cancellations is systematically optimistic.
- How do we compare absorption with other developers?
- Carefully, or not at all. Published figures rarely state their denominator, and without it the comparison is not meaningful.
Related
See it against your own inventory
Bring one project. We load its masterplan and unit list, and you see your own homes as digital records before you decide anything.