The Effect of Expected Losses on the Hong Kong Property Market

Abstract

Expected losses anchored to purchase prices can affect actual transactions in different property sectors. Utilizing the data of over a million commercial and residential property transactions in Hong Kong from 1991 to 2015, we find that sellers facing nominal losses relative to their prior purchase prices attained higher selling prices than their counterparts. We suggest two market factors to account for the extent of the loss effect on the market transaction prices. First, the loss effect is only prominent when comparable transaction information is not readily accessible, such as in the less-transacted commercial property market. Second, our results suggest the relevance of the loss effect to the boom-bust property cycle in both the residential and commercial markets. The effect of expected losses on transaction prices is relatively weak in the bust period between 1998 and 2003 when the Hong Kong property market lost almost two-thirds of its value, and it enlarges with the market recovering. The loss effect is not attenuated at the aggregate market level but is associated with strong reductions in price declines in the bust period and in the commercial market. These results have implications for understanding the market adjustment of the loss effect in the property market and its association with the aggregate market dynamics in a boom-bust property cycle.

Contract rescission in the real estate presale market

“…In addition, we offer explanations on why homebuyers do not always rescind (default on) out‐of‐the‐money presale contracts from demand and the disposition effect, including homebuyers’ preference and behavioral reasons. We show buyers have a particularly strong demand for small‐sized properties in premium locations, and they are also susceptible to loss aversion associated with the disposition effect (Li & Wan, 2021).…”

Boosting Homeownership Affordability for Low-Income Communities in Indonesia

“…Price is the only element of the marketing mix that provides income for the company, while the other three elements are (product, distribution, and promotion) causing costs (expenses). Price is an important point in determining a company's marketing strategy because the price has a great influence on consumers' purchasing power [36][37][38][39][40].…”

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