Why Forward Sales of Housing Survive? - A Theoretical Model

Abstract:     
The moral hazard problem in the forward sale of housing has been shown to be excessively serious that it should not be preferable. However, unlike other heterogeneous commodities, forward sale is very commonly adopted in housing markets, especially in China and Hong Kong. This paper therefore put forward a novel theoretical model contending that signalling, in terms of a company's goodwill in housing markets, plays a very important role in the price discovery process. This goodwill model is an extension of the Ong's (1997) moral hazard model to theorize the prevalence of forward sales in housing markets. The prevalence of forward sales of housing, but the existence of only a few giant developers supports the proposition of signalling effect (goodwill model) to the moral hazard problem. Empirical evidence was separately discussed.

Number of Pages in PDF File: 16

Keywords: forward sales, pre-occupation sales, moral hazard, goodwill capital

JEL Classification: D82, G13

working papers series