Information Asymmetry with Heterogeneous Buyers and Sellers in the Housing Market

29 Pages Posted: 3 May 2019

See all articles by Ling Li

Ling Li

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: April 2, 2019

Abstract

This study examines how heterogeneous traders on both sides of transactions behave in the housing market under information asymmetry. Two types of buyers, namely, informed and uninformed buyers, correspond to local and non-local buyers in the empirical tests. Non-local housing buyers in Hong Kong pay a 2.8% premium over local buyers in the second-hand market for housing units with similar observable attributes. We distinguish real estate developers from sellers in the second-hand market. The former has an incentive and ability to reduce information asymmetry by providing a quality guarantee on the building structure and signaling with brand name, none of which can be fulfilled by sellers in the second-hand market. Empirical results show that developers’ efforts to reduce information asymmetry allow them to fetch a higher price than sellers in the second-hand market, holding property characteristics constant. Such efforts are particularly valued by uninformed buyers as non-local buyers prefer to purchase in the first-hand market rather than in the second-hand market, especially when the problem of information asymmetry is serious.

Keywords: Information asymmetry, Housing price, Non-local buyer, Developer

JEL Classification: D83, R2, R3

Suggested Citation

Li, Ling and Chau, Kwong Wing, Information Asymmetry with Heterogeneous Buyers and Sellers in the Housing Market (April 2, 2019). Available at SSRN: https://ssrn.com/abstract=3364126 or http://dx.doi.org/10.2139/ssrn.3364126

Ling Li (Contact Author)

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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