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Presale pricing strategy and developer competitive intensity: A case of the residential market of Foshan, China

Yaoxuan Huang

ERES from European Real Estate Society (ERES)

Abstract: In recent years, more and more attentions are paid to the second-tier cities especially the satellite towns around the first-tier metropolis. Foshan is a city located in the Pearl River Delta, with its city center only 18 kilometers away from the center of Guangzhou (the third biggest city within China). As the booming of the population in Guangzhou and thus the residential needs, more people choose to live in the city of Foshan and commute to Guangzhou through the Guang-Fo express. Therefore, the residential market of Foshan becomes not only attractive to the local developers but also a potential market to open up for the others. It leads us to wonder the status and strategies of different developers entering such a growing residential market. Previous research going over the residential market mainly reveals from the demand side, or say, the aspect of the individual buyers and sellers within the second-hand market. However, limited studies tell stories from the supply side of the residential properties. To better understand the housing supply, it is important to look at the first hand transactions between the developers and the buyers, especially the presale process. Presale is adopted as a prevailing practice in real estate markets of China including the city of Foshan. This process can be seen as the only market in the developers’ domain since the developers unilaterally price their properties before the spot-sale. Therefore, the pricing mechanism to a great extent reflects the strategies of the developers when they enter into a market and compete with others. This study classifies different developers and investigates their decision-making mechanism during presale. In addition to the pricing mechanism, the traditional project features would also be considered in the study. Presale prices of more than a thousand of residential projects in recent years are disclosed by the Foshan real estate bureau and used in this study, in which tens of various developers are involved. Making use of the Geographically Weighted Regressions (GWR), this study incorporates the spatial connections and dependence among real estate projects and generates an evaluation of the impacts for each of the projects. It is of particular interest and significance to the field of housing studies and urban planning as it provides valuable implications about competitive development strategies for developers, policymakers and urban planners in the near future.

Keywords: Competitive intensity; GWR; Presale; Real estate developer; Residential markets (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2017-07-01
New Economics Papers: this item is included in nep-mkt and nep-ure
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Handle: RePEc:arz:wpaper:eres2017_289