DEVELOPER PRICING STRATEGIES AND TIME-ON-MARKET

Abstract

This paper attempts to investigate the developer’s initial pricing strategies on the time taken to move units in a newly launched development. The basis of the analysis is to test the effect of Degree of Overpricing (DOP) on the Time-on-Market (TOM) using a two-stage methodology, of which the first stage involves a hedonic price regression while the second stage utilises the hazard model. Preliminary analysis of the data from nine condominiums showed that developers tend to overprice their projects by 11.2% on average. More interestingly, the launch period of the condominiums under study from the year 2012 to 2014 coincides with the down- and up- cycle of the real estate market. Not surprisingly, the results showed a significantly larger TOM for condominiums launched during the down market. The hazard model in the second stage showed that it generally becomes increasingly harder to market homes after being unsold in the market over a period of time, as observed by a decreasing hazard function. Consistent with the hypothesis, it was found that DOP generally has a significantly negative effect on hazard rate across all models, which suggests that the larger the DOP, the longer it takes to sell a unit. Following the establishment of the relationship between DOP and TOM, the counterfactual analysis concluded that overpricing in a bid to achieve higher revenue does not pay off. Instead, pricing the units at market value where DOP is zero is able to achieve higher total revenue of as high as 34.7%. Research findings provide essential insights to developers on the trade-offs between pricing and TOM, facilitating more strategic pricing strategies for future project launches.