Presales, Financing Constraints, and Developers' Production Decisions

32 Pages Posted: 11 Dec 2008

See all articles by Su Han Chan

Su Han Chan

City University of New York (CUNY) - Department of Real Estate

Fang Fang

affiliation not provided to SSRN

Jing Yang

California State University, Fullerton - Department of Finance

Date Written: December 8, 2008

Abstract

This study explores the impacts a presale contract has on a developer's pricing and production decisions in a game theoretical framework. In an environment where developers have full capital market access, the findings reveal that both developers and buyers are indifferent between a presale and a spot sale method. However, in an environment with financing constraints, both developers and buyers are better off when a presale method is used. This is because the presale method solves the financing constraint by injecting equity into the development and, hence, reducing financing costs. This model prediction seems to describe well the real world situations seen in some of the property markets in Asia that have nascent financial systems.

Keywords: property markets, Asia, presales contract, developer

Suggested Citation

Chan, Su Han and Fang, Fang and Yang, Jing, Presales, Financing Constraints, and Developers' Production Decisions (December 8, 2008). Journal of Real Estate Research, Vol. 30, No. 3, 2008, Available at SSRN: https://ssrn.com/abstract=1313337

Su Han Chan (Contact Author)

City University of New York (CUNY) - Department of Real Estate

One Bernard Baruch Way
New York, NY New York 10010
United States

Fang Fang

affiliation not provided to SSRN

Jing Yang

California State University, Fullerton - Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

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