Why Forward Sales of Housing Survive? - A Theoretical Model

16 Pages Posted: 17 Sep 2008

See all articles by Edward Chung Yim Yiu

Edward Chung Yim Yiu

University of Auckland Business School

Date Written: September 15, 2008

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.

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

JEL Classification: D82, G13

Suggested Citation

Yiu, Edward Chung Yim, Why Forward Sales of Housing Survive? - A Theoretical Model (September 15, 2008). Available at SSRN: https://ssrn.com/abstract=1268539 or http://dx.doi.org/10.2139/ssrn.1268539

Edward Chung Yim Yiu (Contact Author)

University of Auckland Business School ( email )

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