Pricing of presale properties with asymmetric information

Pao Yue-kong Library Electronic Theses Database

Pricing of presale properties with asymmetric information

 

Author: Leung, Barbara Y. P.
Leung Yuk Ping, Barbara
Title: Pricing of presale properties with asymmetric information
Degree: Ph.D.
Year: 2008
Subject: Hong Kong Polytechnic University -- Dissertations.
Real property -- Prices.
Pricing -- Econometric models.
Department: Dept. of Building and Real Estate
Pages: xv, 225 leaves : ill. ; 30 cm.
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2239615
URI: http://theses.lib.polyu.edu.hk/handle/200/4122
Abstract: Property developers have increasingly used forward contracts to pre-sell their properties that are under construction in order to enhance their financial viability. With reference to the forward property market in Hong Kong, this research investigates how the specific hidden risks arising from asymmetric information embedded in forward property markets affect the pricing mechanism of presale properties. A review of the forward property markets identifies that presale property buyers have to bear not only the additional market risk and the extra capital cost of finance transferred from the developers during the construction period compared to buying a spot property, they also have to bear the hidden presale risks arising from asymmetric information embedded in the forward property markets. Six hidden presale risks are found in Hong Kong and ranked with decreasing seriousness as unethical presale tactics, exaggeration of floor areas, features mismatch, building defects, delayed delivery and development default. This study has examined the roots of the problems which undermine the effectiveness of the presale policies to mitigate the hidden presale risks. The study also identifies the factors which are critical to the development of a forward property market. To examine the price movement of presale properties with respect to the additional risks embedded in the forward market, a Forward Property Repeat Sales (FPRS) Model using forward-spot pair sales data was developed. This has been found to be a more efficient model in reflecting the general price change of the forward property market. In addition, the study compares the FPRS Index and the spot price indices. It shows the price movement of presale properties in the forward market reconciled that of the spot properties during the study period from 1993 to 2005. However, in some years when the market was booming, the spot price indices were found to have fallen slightly behind the FPRS Index. This suggests that buyers had paid a premium on presale properties in order to hedge against the anticipated price appreciation, particularly when the market was booming. A pricing model, the Forward-Spot Index Tracking (FSIT) Model encompassing the Hedonic Pricing Model, the Repeat Sales Price Model and the Single Index Model, was also developed for studying the pricing mechanism of presale properties containing asymmetric information. Statistical analyses of the FSIT Model show that presale property buyers had paid a price approximately 5% higher than those spot buyers for comparables properties, because of the hidden risks embedded in presale properties. This supports the proposition that developers are able to acquire a wealth transfer from presale property buyers to them on pricing of presale properties taking advantage of the asymmetric information inherent in the forward property market. The study is the first research of its kind to provide a comprehensive pricing framework for presale properties with asymmetric information. It also offers valuable findings to property practitioners, showing the extent of the extra amounts that buyers might have paid for the presales in order to get the properties that they desired.

Files in this item

Files Size Format
b22396159.pdf 3.876Mb PDF
Copyright Undertaking
As a bona fide Library user, I declare that:
  1. I will abide by the rules and legal ordinances governing copyright regarding the use of the Database.
  2. I will use the Database for the purpose of my research or private study only and not for circulation or further reproduction or any other purpose.
  3. I agree to indemnify and hold the University harmless from and against any loss, damage, cost, liability or expenses arising from copyright infringement or unauthorized usage.
By downloading any item(s) listed above, you acknowledge that you have read and understood the copyright undertaking as stated above, and agree to be bound by all of its terms.

     

Quick Search

Browse

More Information