Asymmetric Information in the Hong Kong Forward Property Market

Leung, Barbara Y. P.; Hui, Eddie C.M.; Seabrooke, Bill

doi:10.3846/1648715x.2007.9637563

Cited by 13 publications

(12 citation statements)

References 4 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Transactions of uncompleted residential properties in Hong Kong were first recorded in 1954 at a housing estate of over a hundred blocks of three-floor buildings (Leung et al 2007a). After decades of development, presales have become a popular means of property disposal in the primary market.…”

Section: Hong Kong's Presale Systemmentioning

confidence: 99%

What Motivates a Developer to Sell before Completion?

Ling

Chau

2018

J Real Estate Finan Econ

View full text Add to dashboard Cite

Presale, or selling before completion, is a very common phenomenon in the housing market. However, not all developers presell their units and the proportion of units presold varies over time and across projects. This study examines the factors that affect developers' decisions to presell their units. Based on housing transaction records on over 1000 projects in Hong Kong, we found that presale has been used as a tool to hedge against future price fluctuations. Developers' decisions to presell also depend on its effectiveness as a hedging tool, which increases with the size of the development portfolio held by a developer. When the flexibility of a presale is constrained by regulations, its effectiveness declines, thus giving a developer less incentive to presell. Contrary to industry wisdom, presale is not an important source of financing, at least for listed developers in Hong Kong.

show abstract

Section: Hong Kong's Presale Systemmentioning

confidence: 99%

What Motivates a Developer to Sell before Completion?

Ling

Chau

2018

J Real Estate Finan Econ

View full text Add to dashboard Cite

show abstract

“…Given this, for the spot price distribution p ∼ [ p − δ, p + δ], we set the mean as p = 180 and the boundary range parameter as δ = 12. According to Leung et al (2007), one of the property presale payment schedules used in the US is a 5:95 system (that is, 5% deposit and 95% for later payments). We hence set the presale downpayment ratio as d = 5%.…”

Section: Numerical Examplesmentioning

confidence: 99%

Presale Contract and its Embedded Default and Abandonment Options

Chan¹,

Wang²,

Yang

2010

J Real Estate Finan Econ

View full text Add to dashboard Cite

The presale contract is a popular property selling method that allows a buyer to default on the remaining payment and/or a developer to abandon a project. Using a simple two-period game theoretical model, we derive a closed-form pricing equation for a presale contract that explicitly accounts for a developer's abandonment option and a buyer's default option. Although a developer has an abandonment option under either a spot sale or a presale method, the option is more valuable under a presale contract because of an additional cash inflow from the presale downpayment. A presale also provides a buyer a default option, which is valuable in a real estate market with uncertain demand and price risk. We analyze the implications of the abandonment option on a developer's construction decision and choice of selling method, as well as the implications of the default option on a buyer's purchase decision. Furthermore, our model framework has implications to the pricing of futures contracts that involve both stochastic revenues and costs.

show abstract

“…The studies suggested that with the demand side becoming the financial of the supply side in pre-letting and pre-sale market, buyers who are risk adverse would opt-out because of the market risk and capital finance risk that the arrangements transfer on them. Leung et al (2007) and Oloke et al (2017) mention the problem of housing space shrinkage, higher building defects, features mismatches and exaggeration of saleable areas as part of factors restricting the rate of adoption of the arrangements. Furthermore, Ibrahim et al (2015), Jadalhaq (2017) and Zhou et al (2018) identified fear of sudden development default or abandonment, lack of standardised real estate legislation/procedure and lack of perfect market information among factors impeding adoption of pre-letting and pre-sale financing arrangements.…”

Section: Introductionmentioning

confidence: 99%

Adoption of pre-letting and pre-sale financing arrangements for real estate development in a developing economy: an assessment of the influencing factors

Olayiwola,

Aluko,

Ayodele

2023

View full text Add to dashboard Cite

PurposePre-letting and pre-sale financing arrangements have been widely adopted to increase housing delivery in the developed economy. Despite the increasing level of adoption in some developed countries, some are reverting to spot property buying because of factors militating the adoption of pre-letting and pre-sale financing. However, little has been done on the factors influencing the adoption of these trust-based financing arrangements in the developing economy where there are challenges of trust and market transparency.Design/methodology/approachUsing a closed-ended questionnaire, 87 property development companies (PDCs), which constituted 63.5% of the 137 PDCs in Lagos metropolis, were sampled. Variables that influence adoption of pre-letting and pre-sale financing arrangements were presented to respondents for rating on a five-point Likert scale, ranging from 1 (not influential) to 5 (very highly influential). With the aid of SPSS software, acquired data were analysed using principal component analysis (PCA), mean rating and standard deviation.FindingsThe PCA finding revealed that factors influencing the adoption of pre-letting and pre-sale financing had 69.641% total variance. Top-rated components were fear of financial risk and firm’s reputation and poor government involvement and contractors' credibility, with 15.114% and 11.895% variances, respectively. The study findings suggested that the buyers' apprehension regarding the transfer of financial risk and the reputation of the firms significantly influence their decision to embrace both arrangements. As a result, the buyers' willingness to engage the financing arrangements is reduced, which consequently imparts adoption negatively. Furthermore, there is worrisome lack of government involvement, a crucial aspect for the success of such arrangements.Practical implicationsPre-letting and pre-sale financing arrangements are found to be highly suitable for environments where there is trust. The findings enlighten the development firms on the need to uphold their reputation, as buyers attach great significance to the credibility and integrity of the companies they engage in business.Originality/valueThis paper is one of the few attempts that have sought to explore the factors influencing pre-letting and pre-sale financing arrangements in an emerging market like Nigeria.

show abstract

Asymmetric Information in the Hong Kong Forward Property Market

Cited by 13 publications

References 4 publications

What Motivates a Developer to Sell before Completion?

What Motivates a Developer to Sell before Completion?

Presale Contract and its Embedded Default and Abandonment Options

Adoption of pre-letting and pre-sale financing arrangements for real estate development in a developing economy: an assessment of the influencing factors

Contact Info

Product

Resources

About