The Effect of Expected Losses on the Hong Kong Property Market

29 Pages Posted: 3 Jun 2020 Last revised: 12 Jun 2021

See all articles by Ling Li

Ling Li

University of Cambridge - Department of Land Economy

Wayne Xinwei Wan

University of Cambridge - Department of Land Economy

Date Written: June 12, 2021

Abstract

Expected losses anchored to purchase prices can affect actual transactions in different property sectors. Utilizing the data of over a million commercial and residential property transactions in Hong Kong from 1991 to 2015, we find that sellers facing nominal losses relative to their prior purchase prices attained higher selling prices than their counterparts. We suggest two market factors to account for the extent of the loss effect on the market transaction prices. First, the loss effect is only prominent when comparable transaction information is not readily accessible, such as in the less-transacted commercial property market. Second, our results suggest the relevance of the loss effect to the boom-bust property cycle in both the residential and commercial markets. The effect of expected losses on transaction prices is relatively weak in the bust period between 1998 and 2003 when the Hong Kong property market lost almost two-thirds of its value, and it enlarges with the market recovering. The loss effect is not attenuated at the aggregate market level but is associated with strong reductions in price declines in the bust period and in the commercial market. These results have implications for understanding the market adjustment of the loss effect in the property market and its association with the aggregate market dynamics in a boom-bust property cycle.

Keywords: Loss behavior, Anchoring, Market information, Property cycle, Commercial property, Residential property

JEL Classification: D83, G40, R30

Suggested Citation

Li, Ling and Wan, Wayne Xinwei, The Effect of Expected Losses on the Hong Kong Property Market (June 12, 2021). Available at SSRN: https://ssrn.com/abstract=3594101 or http://dx.doi.org/10.2139/ssrn.3594101

Ling Li (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Wayne Xinwei Wan

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://xinweiwan.weebly.com

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