Time-on-market in Chinese condominium presales
Abstract
The condominium presale market is characterized by information asymmetry between the developer and potential buyers. A condominium developer faces conflicting incentives to sell units quickly at a lower price to generate cash and sales momentum versus to hold prices high and endure longer marketing time to maximize revenues and maintain the property’s value. We examine the pattern of marketing duration for condominium units offered for presale in a large homogeneous development in Chengdu, China using a Cox proportional hazards model. Results indicate that a patient developer may extract a price premium on units. Diminishing risk to buyers is associated with shorter marketing duration. Time-on-market is also influenced by unit and building size as well as orientation. Market conditions may moderate the speed at which units are sold.
Keyword : China, condominiums, housing market, presale, time-on-market
How to Cite
Zhou, X., Zahirovic-Herbert, V., & Gibler, K. M. (2018). Time-on-market in Chinese condominium presales. International Journal of Strategic Property Management, 22(3), 191-203. https://doi.org/10.3846/ijspm.2018.1547
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Akerlof, G. A. (1970). The market for “lemons”: quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488-500. https://doi.org/10.2307/1879431
An, Z., Cheng, P., Lin, Z., & Liu, Y. (2013). How do market conditions impact price-TOM relationship? Evidence from real estate owned (REO) sales. Journal of Housing Economics, 22(3), 250-263. https://doi.org/10.1016/j.jhe.2013.07.003
Asabere, P. K., & Huffman, F. E. (1993). Price concessions, time on market, and the actual sale price of homes. Journal of Real Estate Finance and Economics, 6(2), 167-174. https://doi.org/10.1007/BF01097024
Belkin, J., Hempel, D. J., & McLeavey, D. W. (1976). An empirical study of time on market using multidimensional segmentation of housing markets. AREUEA Journal, 4(2), 57-75. https://doi.org/10.1111/1540–6229.00156
Benefield, J. D., Cain, C. L., & Johnson, K. H. (2014). A review of literature utilizing simultaneous modeling techniques for property price and time-on-market. Journal of Real Estate Literature, 22(2), 149-175.
Chan, S. H., Fang, F., & Yang, J. (2008). Presales, financing constraints, and developers’ production decisions. Journal of Real Estate Research, 30(3), 345-375.
Chan, S. H., Fang, F., & Yang, J. (2014). Presales, leverage decisions, and risk shifting. Journal of Real Estate Research, 36(4), 457-509.
Chan, S. H., Wang, K., & Yang, J. (2012). Presale contract and its embedded default and abandonment options. Journal of Real Estate Finance and Economics, 44(1), 116-152. https://doi.org/10.1007/s11146–010–9289–5
Chau, K. W., Wong, S. K., & Yiu, C. Y. (2003). Price discovery function of forward contracts in the real estate market: an empirical test. Journal of Financial Management of Property and Construction, 8(3), 129-137.
Chau, K. W., Wong, S. K., & Yiu, C. Y. (2007). Housing quality in the forward contracts market. Journal of Real Estate Finance and Economics, 34(3), 313-325. https://doi.org/10.1007/s11146–007–9018-x
Choi, J., Rasmussen, H., & Davison, M. (2012). Fair value and risk profiles for presale contracts of condominiums. Journal of Real Estate Finance and Economics, 44(4), 472-504. https://doi.org/10.1007/s11146–010–9248–1
Cox, D. R. (1972). Regression models and life-tables (with discussion). Journal of Royal Statistical Society, B34(2), 187-220.
Cubbin, J. (1974). Price, quality and selling time in the housing market. Applied Economics, 6, 171-187. https://doi.org/10.1080/00036847400000017
Deng, G., Li, Z., & Ye, G. (2012). Mortgage rate and the choice of mortgage length: quasi-experimental evidence from Chinese transaction-level data. Working Paper 12/02. Hong Kong: BBVA Research.
Deng, Y., & Liu, P. (2009). Mortgage prepayment and default behaviour with embedded forward contract risks in China’s housing market. Journal of Real Estate Finance and Economics, 38(3), 214-240. https://doi.org/10.1007/s11146–008–9151–1
Edelstein, R., Liu, P., & Wu, F. (2012). The market for real estate presales: a theoretical approach. Journal of Real Estate Finance and Economics, 45(1), 30-48. https://doi.org/10.1007/s11146–011–9318-z
Fan, G.-Z., Pu, M., & Ong, S. E. (2012). Optimal portfolio choices, house risk hedging and the pricing of forward house transactions. Journal of Real Estate Finance and Economics, 45(1), 3-29. https://doi.org/10.1007/s11146–011–9323–2
Farrell, L. M. (2003). Principal-agency risk in project finance. International Journal of Project Management, 21(8), 547-561. https://doi.org/10.1016/S0263–7863(02)00086–8
Gustavsson, F., & Vahtola, S. (2014). Pricing strategies in newly developed housing projects (Master’s thesis). Stockholm: KTH Royal Institute of Technology.
Gwin, C. R., & Ong, S. E. (2000). Homeowner warranties and building codes. Journal of Property Investment and Finance, 28(4), 456-472. https://doi.org/10.1108/14635780010345409
Han, L., & Strange, W. (2015). The microstructure of housing markets. In G. Duranton, J. V. Henderson, W. Strange (Eds.), Handbook of regional and urban economics (pp. 813-886). Vol. 5. Amsterdam: Elsevier. https://doi.org/10.1016/B978–0-444–59531–7.00013–2
Haurin, D. (1988). The duration of marketing time of residential housing. AREUEA Journal, 16(4), 396-410. https://doi.org/10.1111/1540–6229.00463
Holmstrom, B. (1979). Moral hazard and observability. Bell Journal of Economics, 10(1), 74-91. https://doi.org/10.2307/3003320
Hua, C. C., Chang, C. O., & Hsieh, C. (2001). The price-volume relationships between the existing and the pre-sales housing markets in Taiwan. International Real Estate Review, 4(1), 80-94.
Hui, E. C. M., Wong, J. T. Y., & Wong, K. T. (2012). Marketing time and pricing strategies. Journal of Real Estate Research, 34(3), 375-398.
Hui, E. C. M., & Yu, K. H. (2012). The impact of pricing strategies on time-on-market under various economic conditions. International Journal of Strategic Property Management, 16(1), 56-70. https://doi.org/10.3846/1648715X.2011.585185
Hwang, M., & Quigley, J. (2010). Housing price dynamics in time and space: predictability, liquidity and investor returns. Journal of Real Estate Finance and Economics, 41(1), 3-23. https://doi.org/10.1007/s11146–009–9207-x
Kalra, R., & Chan, K. C. (1994). Censored sample bias, macro-economic factors and time on market of residential housing. Journal of Real Estate Research, 9(2), 253-262.
Kang, H. B., & Gardner, M. J. (1989). Selling price and marketing time in the residential real estate market. Journal of Real Estate Research, 4(1), 21-35.
Lai, R. N., Wang, K., & Zhou, Y. (2004). Sale before completion of development: pricing and strategy. Real Estate Economics, 32(2), 329-357. https://doi.org/10.1111/j.1080–8620.2004.00094.x
Leland, H. E., & Pyle, D. H. (1977). Informational asymmetries, financial structure, and financial intermediation. Journal of Finance, 32(2), 371-387. https://doi.org/10.2307/2326770
Leung, B. Y. P., Hui, E. C. M., & Seabrooke, B. (2007a). Asymmetric information in the Hong Kong forward property market. International Journal of Strategic Property Management, 11(2), 91-106.
Leung, B., Hui, E., & Seabrooke, B. (2007b). Pricing of presale properties with asymmetric information problems. Journal of Real Estate Portfolio Management, 13(2), 139-152.
Li, W.-F. (2004). The impact of pricing on time-on-market in high-rise multiple-unit residential developments. Pacific Rim Property Research Journal, 10(3), 305-327. https://doi.org/10.1080/14445921.2004.11104165
Liu, Y. (2007). Buyers demand compensation. Group of 30 owners at Chongqing villa project complain of poor quality at Cheung Kong and Hutchison development, South China Morning Post. Retrieved from http://www.scmp.com/article/581087/buyers-demand-compensation
Miller, N. M., Sklarz, M., & Ordway, N. (1988). Japanese purchases, exchange rates and speculation in residential real estate markets. Journal of Real Estate Research, 3(3), 39-49.
National Bureau of Statistics of China. (2011). China statistical yearbook. Beijing: China Statistics Press.
Ong, S. E. (1997). Building defects, warranties and project financing from pre-completion marketing. Journal of Property Finance, 8(1), 35-51. https://doi.org/10.1108/09588689710160507
Ong, S. E. (1999). Caveat emptor: adverse selection in buying properties under construction. Property Management, 17(1), 49-64. https://doi.org/10.1108/02637479910255749
Ong, S. E., & Koh, Y. C. (2000). Time-on-market and price trade-offs in high-rise housing sub-markets. Urban Studies, 37(11), 2057-2071. https://doi.org/10.1080/713707223
Sirmans, G. S., MacDonald, L., & Macpherson, D. (2010). A meta-analysis of selling price and time-on-the-market. Journal of Housing Research, 19(2), 130-152.
Waller, B. D., Brastow, R., & Johnson, K. H. (2010). Listing contract length and time on market. Journal of Real Estate Research, 32(3), 271-288.
Wong, S. K., Chau, K. W., Yau, Y., & Cheung, A. K. C. (2011). Property price gradients: the vertical dimension. Journal of Housing and the Built Environment, 26(1), 33-45. https://doi.org/10.1007/s10901–010–9203–8
Wong, S. K., Yiu, C. Y., Tse, M. K. S., & Chau, K. W. (2006). Do the forward sales of real estate stabilize spot prices?. Journal of Real Estate Finance and Economics, 32(3), 289-304. https://doi.org/10.1007/s11146–006–6803-x
Wu, J., Deng, Y., & Liu, H. (2014). House price index construction in the nascent housing market: the case of China. Journal of Real Estate Finance and Economics, 48(3), 522-545. https://doi.org/10.1007/s11146–013–9416–1
Yang, Z. (2001). An application of the hedonic price model with uncertain attribute: the case of the People’s Republic of China. Property Management, 19(1), 50-63. https://doi.org/10.1108/02637470110366202
Yiu, C. Y., Hui, E. C. M., & Wong, S. K. (2005). Lead-lag relationship between the real estate spot and forward contracts markets. Journal of Real Estate Portfolio Management, 11(3), 253-262.
Yiu, C. Y., Wong, S. K., & Chau, K. W. (2009). Transaction volume and price dispersion in the presale and spot real estate markets. Journal of Real Estate Finance and Economics, 38(3), 241-253. https://doi.org/10.1007/s11146–008–9161-z
Zhou, X., Zahirovic-Herbert, V., & Gibler, K. M. (2015). Asymmetric buyer information influence on price in a homogeneous housing market. Urban Studies, 52(5), 801-905. https://doi.org/10.1177/0042098014529464
An, Z., Cheng, P., Lin, Z., & Liu, Y. (2013). How do market conditions impact price-TOM relationship? Evidence from real estate owned (REO) sales. Journal of Housing Economics, 22(3), 250-263. https://doi.org/10.1016/j.jhe.2013.07.003
Asabere, P. K., & Huffman, F. E. (1993). Price concessions, time on market, and the actual sale price of homes. Journal of Real Estate Finance and Economics, 6(2), 167-174. https://doi.org/10.1007/BF01097024
Belkin, J., Hempel, D. J., & McLeavey, D. W. (1976). An empirical study of time on market using multidimensional segmentation of housing markets. AREUEA Journal, 4(2), 57-75. https://doi.org/10.1111/1540–6229.00156
Benefield, J. D., Cain, C. L., & Johnson, K. H. (2014). A review of literature utilizing simultaneous modeling techniques for property price and time-on-market. Journal of Real Estate Literature, 22(2), 149-175.
Chan, S. H., Fang, F., & Yang, J. (2008). Presales, financing constraints, and developers’ production decisions. Journal of Real Estate Research, 30(3), 345-375.
Chan, S. H., Fang, F., & Yang, J. (2014). Presales, leverage decisions, and risk shifting. Journal of Real Estate Research, 36(4), 457-509.
Chan, S. H., Wang, K., & Yang, J. (2012). Presale contract and its embedded default and abandonment options. Journal of Real Estate Finance and Economics, 44(1), 116-152. https://doi.org/10.1007/s11146–010–9289–5
Chau, K. W., Wong, S. K., & Yiu, C. Y. (2003). Price discovery function of forward contracts in the real estate market: an empirical test. Journal of Financial Management of Property and Construction, 8(3), 129-137.
Chau, K. W., Wong, S. K., & Yiu, C. Y. (2007). Housing quality in the forward contracts market. Journal of Real Estate Finance and Economics, 34(3), 313-325. https://doi.org/10.1007/s11146–007–9018-x
Choi, J., Rasmussen, H., & Davison, M. (2012). Fair value and risk profiles for presale contracts of condominiums. Journal of Real Estate Finance and Economics, 44(4), 472-504. https://doi.org/10.1007/s11146–010–9248–1
Cox, D. R. (1972). Regression models and life-tables (with discussion). Journal of Royal Statistical Society, B34(2), 187-220.
Cubbin, J. (1974). Price, quality and selling time in the housing market. Applied Economics, 6, 171-187. https://doi.org/10.1080/00036847400000017
Deng, G., Li, Z., & Ye, G. (2012). Mortgage rate and the choice of mortgage length: quasi-experimental evidence from Chinese transaction-level data. Working Paper 12/02. Hong Kong: BBVA Research.
Deng, Y., & Liu, P. (2009). Mortgage prepayment and default behaviour with embedded forward contract risks in China’s housing market. Journal of Real Estate Finance and Economics, 38(3), 214-240. https://doi.org/10.1007/s11146–008–9151–1
Edelstein, R., Liu, P., & Wu, F. (2012). The market for real estate presales: a theoretical approach. Journal of Real Estate Finance and Economics, 45(1), 30-48. https://doi.org/10.1007/s11146–011–9318-z
Fan, G.-Z., Pu, M., & Ong, S. E. (2012). Optimal portfolio choices, house risk hedging and the pricing of forward house transactions. Journal of Real Estate Finance and Economics, 45(1), 3-29. https://doi.org/10.1007/s11146–011–9323–2
Farrell, L. M. (2003). Principal-agency risk in project finance. International Journal of Project Management, 21(8), 547-561. https://doi.org/10.1016/S0263–7863(02)00086–8
Gustavsson, F., & Vahtola, S. (2014). Pricing strategies in newly developed housing projects (Master’s thesis). Stockholm: KTH Royal Institute of Technology.
Gwin, C. R., & Ong, S. E. (2000). Homeowner warranties and building codes. Journal of Property Investment and Finance, 28(4), 456-472. https://doi.org/10.1108/14635780010345409
Han, L., & Strange, W. (2015). The microstructure of housing markets. In G. Duranton, J. V. Henderson, W. Strange (Eds.), Handbook of regional and urban economics (pp. 813-886). Vol. 5. Amsterdam: Elsevier. https://doi.org/10.1016/B978–0-444–59531–7.00013–2
Haurin, D. (1988). The duration of marketing time of residential housing. AREUEA Journal, 16(4), 396-410. https://doi.org/10.1111/1540–6229.00463
Holmstrom, B. (1979). Moral hazard and observability. Bell Journal of Economics, 10(1), 74-91. https://doi.org/10.2307/3003320
Hua, C. C., Chang, C. O., & Hsieh, C. (2001). The price-volume relationships between the existing and the pre-sales housing markets in Taiwan. International Real Estate Review, 4(1), 80-94.
Hui, E. C. M., Wong, J. T. Y., & Wong, K. T. (2012). Marketing time and pricing strategies. Journal of Real Estate Research, 34(3), 375-398.
Hui, E. C. M., & Yu, K. H. (2012). The impact of pricing strategies on time-on-market under various economic conditions. International Journal of Strategic Property Management, 16(1), 56-70. https://doi.org/10.3846/1648715X.2011.585185
Hwang, M., & Quigley, J. (2010). Housing price dynamics in time and space: predictability, liquidity and investor returns. Journal of Real Estate Finance and Economics, 41(1), 3-23. https://doi.org/10.1007/s11146–009–9207-x
Kalra, R., & Chan, K. C. (1994). Censored sample bias, macro-economic factors and time on market of residential housing. Journal of Real Estate Research, 9(2), 253-262.
Kang, H. B., & Gardner, M. J. (1989). Selling price and marketing time in the residential real estate market. Journal of Real Estate Research, 4(1), 21-35.
Lai, R. N., Wang, K., & Zhou, Y. (2004). Sale before completion of development: pricing and strategy. Real Estate Economics, 32(2), 329-357. https://doi.org/10.1111/j.1080–8620.2004.00094.x
Leland, H. E., & Pyle, D. H. (1977). Informational asymmetries, financial structure, and financial intermediation. Journal of Finance, 32(2), 371-387. https://doi.org/10.2307/2326770
Leung, B. Y. P., Hui, E. C. M., & Seabrooke, B. (2007a). Asymmetric information in the Hong Kong forward property market. International Journal of Strategic Property Management, 11(2), 91-106.
Leung, B., Hui, E., & Seabrooke, B. (2007b). Pricing of presale properties with asymmetric information problems. Journal of Real Estate Portfolio Management, 13(2), 139-152.
Li, W.-F. (2004). The impact of pricing on time-on-market in high-rise multiple-unit residential developments. Pacific Rim Property Research Journal, 10(3), 305-327. https://doi.org/10.1080/14445921.2004.11104165
Liu, Y. (2007). Buyers demand compensation. Group of 30 owners at Chongqing villa project complain of poor quality at Cheung Kong and Hutchison development, South China Morning Post. Retrieved from http://www.scmp.com/article/581087/buyers-demand-compensation
Miller, N. M., Sklarz, M., & Ordway, N. (1988). Japanese purchases, exchange rates and speculation in residential real estate markets. Journal of Real Estate Research, 3(3), 39-49.
National Bureau of Statistics of China. (2011). China statistical yearbook. Beijing: China Statistics Press.
Ong, S. E. (1997). Building defects, warranties and project financing from pre-completion marketing. Journal of Property Finance, 8(1), 35-51. https://doi.org/10.1108/09588689710160507
Ong, S. E. (1999). Caveat emptor: adverse selection in buying properties under construction. Property Management, 17(1), 49-64. https://doi.org/10.1108/02637479910255749
Ong, S. E., & Koh, Y. C. (2000). Time-on-market and price trade-offs in high-rise housing sub-markets. Urban Studies, 37(11), 2057-2071. https://doi.org/10.1080/713707223
Sirmans, G. S., MacDonald, L., & Macpherson, D. (2010). A meta-analysis of selling price and time-on-the-market. Journal of Housing Research, 19(2), 130-152.
Waller, B. D., Brastow, R., & Johnson, K. H. (2010). Listing contract length and time on market. Journal of Real Estate Research, 32(3), 271-288.
Wong, S. K., Chau, K. W., Yau, Y., & Cheung, A. K. C. (2011). Property price gradients: the vertical dimension. Journal of Housing and the Built Environment, 26(1), 33-45. https://doi.org/10.1007/s10901–010–9203–8
Wong, S. K., Yiu, C. Y., Tse, M. K. S., & Chau, K. W. (2006). Do the forward sales of real estate stabilize spot prices?. Journal of Real Estate Finance and Economics, 32(3), 289-304. https://doi.org/10.1007/s11146–006–6803-x
Wu, J., Deng, Y., & Liu, H. (2014). House price index construction in the nascent housing market: the case of China. Journal of Real Estate Finance and Economics, 48(3), 522-545. https://doi.org/10.1007/s11146–013–9416–1
Yang, Z. (2001). An application of the hedonic price model with uncertain attribute: the case of the People’s Republic of China. Property Management, 19(1), 50-63. https://doi.org/10.1108/02637470110366202
Yiu, C. Y., Hui, E. C. M., & Wong, S. K. (2005). Lead-lag relationship between the real estate spot and forward contracts markets. Journal of Real Estate Portfolio Management, 11(3), 253-262.
Yiu, C. Y., Wong, S. K., & Chau, K. W. (2009). Transaction volume and price dispersion in the presale and spot real estate markets. Journal of Real Estate Finance and Economics, 38(3), 241-253. https://doi.org/10.1007/s11146–008–9161-z
Zhou, X., Zahirovic-Herbert, V., & Gibler, K. M. (2015). Asymmetric buyer information influence on price in a homogeneous housing market. Urban Studies, 52(5), 801-905. https://doi.org/10.1177/0042098014529464