Pricing of Presale Properties with Asymmetric Information Problems

Barbara Leung, Eddie Hui and Bill Seabrooke

Journal of Real Estate Portfolio Management, 2007, vol. 13, issue 2, 139-152

Abstract: Executive Summary. Property developers have increasingly used forward contracts to pre-sell uncompleted properties to enhance their financial viability. However, there are limited researchers exploring the hidden forward risks arising from asymmetric information issues embedded in forward property markets. This study sets up a Forward-Spot Property Index-Tracking (FSIT) model, which is able to capture not only the risks arising from market uncertainty during the construction timelag and the discount required to compensate for the missing rents within the forward contract period, but also the risk premium imposed on a purchase of a presale property arising from asymmetric information issues.

Date: 2007
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DOI: 10.1080/10835547.2007.12089768

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