Understand How Developers Construct the Pricing Of the

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Understand How Developers Construct the Pricing Of the Residential Property Dr. Nell Chang &

Understand How Developers Construct the Pricing Of the Residential Property Dr. Nell Chang & Dr. Tim Havard European Real Estate Society 16 th Annual Conference 2009

Developers’ Perceptions Findings come from 23 participant experiments of the Beijing and Hong Kong

Developers’ Perceptions Findings come from 23 participant experiments of the Beijing and Hong Kong developers using process tracing protocol Main Investigations: To investigate in a scenario resemble the real life situation, what factors developers would consider in constructing a price opinion

Process Tracing Protocol Application • The process tracing protocol tries to follow the human

Process Tracing Protocol Application • The process tracing protocol tries to follow the human decision-making processes • The professionals, usually the appraisers, and the novices are requested to solve a problem that involves decision making • The researcher needs to observe the sequence of requested and utilized information • This traces the problem solving process

Process Tracing Protocol Advantages • Traditional research paradigms have proved inadequate for the purpose

Process Tracing Protocol Advantages • Traditional research paradigms have proved inadequate for the purpose of descriptive research - actual problem-solving behaviour; the measurement techniques wedded to conventional statistics cannot capture the richness of human problem solving Diaz III (1992) • Although the decision making context is artificially constructed for research purposes, the results are no less reliable than those obtained by other methods Hall and Hofer (1993) • This methodology could provide powerful data that are invisible to other methods Ransdell (1995)

The Participant Experiment The Scenario • Firstly developers were asked what information they might

The Participant Experiment The Scenario • Firstly developers were asked what information they might need and consider in pricing an apartment in an unfamiliar market. • Secondly they were presented with a situational question proposing that they were requested by their company to price four properties in an unfamiliar city that they will invest. • The basic general information on the developments: • the city location plan that shows the geographical location of the four developments, • overall perspective/drawing of the development, • the tower floor plan, • the layout plan and some descriptions of the development. • No transactional price is provided

The Participant Experiment The Process • Developers were requested to give a narrative of

The Participant Experiment The Process • Developers were requested to give a narrative of their thought process and a summary of factors they took into consideration in determining the apartment price. • They were asked to talk as they conducted the required task and were encouraged to provide as much indication as they wished about what information they were looking at and why • They were told that the information provided was only basic information. • They could ask for any other information which they thought would be essential in making their decisions

Hong Kong Developers What information / factors developers would need to acquire / consider

Hong Kong Developers What information / factors developers would need to acquire / consider if they are requested to price an apartment in an unfamiliar market?

Hong Kong Developers What information / factors developers would need to acquire / consider

Hong Kong Developers What information / factors developers would need to acquire / consider if they are requested to price an apartment in an unfamiliar market? • 14 major factors have been considered • There are four main considerations that cannot be reflected in the pricing decision experiment: • affordability: that includes the price of the properties, the buyers’ income and the length of mortgage in the owners’ view. • cost: land construction • number of apartments completed per annum • future market trend

Beijing Developers What information / factors developers would need to acquire / consider if

Beijing Developers What information / factors developers would need to acquire / consider if they are requested to price an apartment in an unfamiliar market?

Beijing Developers What information / factors developers would need to acquire / consider if

Beijing Developers What information / factors developers would need to acquire / consider if they are requested to price an apartment in an unfamiliar market? • 14 major factors have been considered • As in the Hong Kong market, there are four main considerations that cannot be reflected in the second pricing experiment: • affordability: that includes the price of the properties and personal income • Unlike developers in the Hong Kong market, Beijing developers emphasise the importance of the living standard • the rental rate • the sale situation that includes the vacancy

Hong Kong Developers All of the factors that have been considered

Hong Kong Developers All of the factors that have been considered

Hong Kong Developers All of the factors that have been considered • In total

Hong Kong Developers All of the factors that have been considered • In total Hong Kong owners have considered 19 major factors in their decision making process. • The most frequently considered factor is a distance factordistance to transport • The second factor is as expected, the location factor • The other three factors that are considered most are one distance factor: CBD, one environmental factor and one property factor: the apartment / development layout • Interestingly some developers would consider who the developers are in order to determine the price

Beijing Developers All of the factors that have been considered

Beijing Developers All of the factors that have been considered

Beijing Developers All of the factors that have been considered • In total Beijing

Beijing Developers All of the factors that have been considered • In total Beijing developers have considered 16 major factors in their decision making process. • The two most frequently considered factors in Beijing developers’ consideration process are location factor and the distance to transport. Distance to the CBD is also important • Three environmental factors have been considered including the environment, social class and district • One property factor: facilities available. • Beijing developers also seem to consider who the developers are in order to determine the price.

Hong Kong Developers The major determinants in developers’ final pricing decision

Hong Kong Developers The major determinants in developers’ final pricing decision

Hong Kong Developers The major determinants in developers’ final purchase decision • Among all

Hong Kong Developers The major determinants in developers’ final purchase decision • Among all the 19 factors that have been considered during the pricing process, 16 factors are suggested as determinants • The most important factor seems to be the distance to transport, but the location factor is mostly the first factor developers considered • Layout: show target buyers’ social class & construction cost • Scale: Big enough to create a whole community itself New large development is possible to make a better environment Small development in old setting might not match with neighbourhood and cannot sustain a high price

Beijing Developers The major determinants in developers’ final purchase decision

Beijing Developers The major determinants in developers’ final purchase decision

Beijing Developers The major determinants in developers’ final purchase decision • Among all the

Beijing Developers The major determinants in developers’ final purchase decision • Among all the 16 factors that have been considered during developers’ pricing process, 11 factors are suggested as determinants • The most important factor in Beijing developers’ opinion is the location • Interestingly location is comparatively more important factor in Beijing developers’ view while distance to CBD and environment is more important than distance to transport • Facility is found to be more important in Beijing developers’ view • Facility: government cannot catch up – properties with no water & electricity park, club house, swimming pool – scale factor

Developers’ Decision of Pricing What developers consider in their pricing decision-making process

Developers’ Decision of Pricing What developers consider in their pricing decision-making process

Developers’ Decision of Pricing What developers consider in their pricing decision-making process • There

Developers’ Decision of Pricing What developers consider in their pricing decision-making process • There are seven factors being considered first by Hong Kong owners but eleven by Beijing owners. • Only one factor, land cost, is considered first by Hong Kong developers but not by Beijing developers. • Ten of them are the same between the two groups. This might imply developers in the two markets have very similar ways of thinking-in terms of the factors coming first to their minds.

Properties for Hong Kong Developers The property attributes

Properties for Hong Kong Developers The property attributes

Properties for Beijing Developers The property attributes

Properties for Beijing Developers The property attributes

Hong Kong vs. Beijing The apartments that are viewed as having the higher price

Hong Kong vs. Beijing The apartments that are viewed as having the higher price in the two markets are quite similar • They are both closest to the CBD and in the median distance to the supposed work place (location) • The closest to the underground railway station in Hong Kong developers’ choice but furthest in Beijing’ developers’ choice • At a low located floor • Have undesirable north and west orientation • Smallest or second smallest

Summary • Developers would consider financial factors such as affordability at an earlier stage

Summary • Developers would consider financial factors such as affordability at an earlier stage before the examination of individual properties • They consider all the four groups of factors (distance, environment, finance and property) with no particular weight given to any group. • ‘Location’ that are mainly defined as distance to CBD in these two market is a very important factor in developers’ pricing decision • Developers’ perceptions of the major price determinants include the developers’ reputation • There is no universal applicable agreement on the major price determinants • The generally agreed major price determinants are location, distance to transport, environment and distance to CBD

The End

The End