Forward pricing and the housing market: The pre‐sales housing system in Taiwan

Chang, Chin‐Oh; Ward, Charles

doi:10.1080/09599919308724094

Cited by 54 publications

(33 citation statements)

References 3 publications

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“…Those studies, in general, do not explicitly address a developer's nor a buyer's option to default. Their main objectives are to address issues such as the pricing factors of a futures contract (Chang and Ward 1993), the signaling effect of presale activities , the impact of a presale market on the adjustment of housing supply (Hua et al 2001), the relationship between presale price and future spot sale price (Wong et al 2006), and moral hazard problems that might result in defective properties being delivered (Edelstein et al 2008).…”

Section: Introductionmentioning

confidence: 99%

Presale Contract and its Embedded Default and Abandonment Options

Chan¹,

Wang²,

Yang

2010

J Real Estate Finan Econ

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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.

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Section: Introductionmentioning

confidence: 99%

Presale Contract and its Embedded Default and Abandonment Options

Chan¹,

Wang²,

Yang

2010

J Real Estate Finan Econ

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“…housing. In recent decades a pre-sale housing system has contributed to the growth of private sector housing construction (Chang and Ward, 1993). State intervention and housing subsidies have also risen, helping drive home ownership rates up further.…”

Section: The House Market and Housing Policy In Taiwanmentioning

confidence: 99%

The Non-linear Ripple Effect of Housing Prices in Taiwan: A Smooth Transition Regressive Model

Chien¹

2013

Proceedings of the 20th Annual European Real Estate Society Conference - Vienna, Austria

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Different from past research of regional house prices, this paper employs the smooth transition regression (STR) model to investigate the ripple effects among regional house prices in Taiwan. The aim of this paper is to test whether a smooth transition regression model, which is capable of capturing this non-linear behaviour, shows a better characterisation of regional house prices than a linear model. Our main findings are as follows. First, the results reveal that there is a mixture of linear and smooth non-linear ripple effects in Taiwan's regional house prices. If there is enough time to adjust, then the non-linear behavior in house prices will exist, causing a non-linear ripple effect for the regional house prices. Second, a large portion of the variance in Taiwan's overall house price changes is associated with Taipei's house price changes, and Kaohsiung's house price changes do not effectively impact Taiwan's overall house price changes. Third, strong evidence shows that the STR models capture the smooth non-linear ripple effects of regional house prices in Taipei and Taichung, and several features identify the superiority of the non-linear estimation. When compared with Taichung, there is a faster speed of transition between the regimes in Taipei. Fourth and finally, the estimated transition parameter value, revealing the halfway point between two regimes, is lower in Taipei and implies that a change in Taipei's house prices can more easily cause a non-linear "ripple out" change in Taiwan's overall house prices.

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“…For the homebuyer, presale housing can be purchased at a discounted price, and they gain ownership rights in advance. Moreover, homebuyers are able to participate and supervise the progress of the housing project in order to ensure their property rights on completion of the project [17].…”

Section: Pre-sales Housing Systemmentioning

confidence: 99%

Optimal Cost–Quality Trade-Off Model for Differentiating Presale Housing Quality Strategies

Juan

Lin

2018

Sustainability

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Housing quality (HQ) has been a long-standing concern for both developers and homebuyers. Currently, HQ depends on the expected profit and subjectivity of the developers, and homebuyers only have a passive choice of whether to accept housing with such quality. Asian housing supply markets have largely adopted the presale housing system. Under this system, developers are able to verify future occupants before commencing construction, enabling them to provide customized designs and differentiated quality items in order to meet user demands and value. Consequently, HQ can be enhanced. A cost-quality trade-off model was developed using a genetic algorithm to help decision-makers identify the optimal HQ differentiation strategy that simultaneously satisfies homebuyers' expectations of quality and developers' expectations of profits. The findings showed that the presale housing system effectively improves HQ. A 6% increase in homebuyers' budgets can achieve the optimal quality improvement effect, while an 8% or more increase in developers' construction costs in order to improve HQ can generate an additional premium for the developers.

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Forward pricing and the housing market: The pre‐sales housing system in Taiwan

Cited by 54 publications

References 3 publications

Presale Contract and its Embedded Default and Abandonment Options

Presale Contract and its Embedded Default and Abandonment Options

The Non-linear Ripple Effect of Housing Prices in Taiwan: A Smooth Transition Regressive Model

Optimal Cost–Quality Trade-Off Model for Differentiating Presale Housing Quality Strategies

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