On the Strategic Timing of Sales by Real Estate Developers: To Wait or to Presell?

25 Pages Posted: 24 May 2018 Last revised: 7 Mar 2019

See all articles by Ling Li

Ling Li

University of Cambridge - Department of Land Economy

Helen X. H. Bao

University of Cambridge - Department of Land Economy

K.W. Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics

Date Written: May 14, 2018

Abstract

In timing property listings, real estate developers can exercise the “option to wait” or “option to presale” to mitigate price uncertainty risk. In this study, we proposed a theoretical model to study the effectiveness of both strategies under a unified framework. We tested our model using data from Hong Kong between 1995 and 2015. Empirical evidence shows that when the presale option is unavailable, developers tend to adopt the waiting strategy when facing price uncertainty risk. Conversely, when a presale option is available, developers will accelerate sales when price volatility is high. Moreover, the effectiveness of the presale option depends substantially on government restrictions. Our approach facilitates the identification of the net effect of either tool and provides an opportunity to unify conflicting findings in the literature.

Keywords: Real option, Regulation, Planning, Hazard model

JEL Classification: D81, R31, R58

Suggested Citation

Li, Ling and Bao, Helen X. H. and Chau, Kwong Wing, On the Strategic Timing of Sales by Real Estate Developers: To Wait or to Presell? (May 14, 2018). Available at SSRN: https://ssrn.com/abstract=3178006 or http://dx.doi.org/10.2139/ssrn.3178006

Ling Li (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Helen X. H. Bao

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Kwong Wing Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics ( email )

Ronald Coase Centre for Property Rights Research
Pokfulam Road
Hong Kong
Hong Kong
(852)28592128 (Phone)
(852)25599457 (Fax)

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