IMPACT OF DEVELOPERS' MARKET CONCENTRATION ON WATERFRONT PRICING PREMIUMS

Abstract

“A scenic view is a residential amenity associated with the location of a dwelling site” and it has a positive impact on residential prices. However, these findings are often measured using a single dummy variable, which might not accurately quantify view premiums. This study considers developers’ market concentration and attempts to understand its relationship with relation to waterfront view premiums by postulating that developers with a large market concentration are able to gain market power and have the ability to influence market prices. A Herfindahl-Hirschman index (or HHI) was used to calculate district’s market competitiveness (DISCONC) and developers’ market concentration (DEVCONC). After running two hedonic regressions, the results reaffirms that water view adds 0.126% premium per square metre (psm). In addition, a non-linear relationship between market concentration and prices was established, which supports the literature that market concentration has a positive relationship with prices. To further understand the relationship, an interaction term was added and it showed that effect of DEVCONC on prices is dependent on view. However, with growing market dominance, negative implications may arise. First-time developers may not be able to compete with existing developers, as developers with strong market presence are able to command higher prices in an oligopolistic market. This may also have an impact on potential homebuyers as property prices become gradually unaffordable.