Housing price dispersion in the presale market

Sale before completion(i.e.presale)is a common practice that real estate developers use to sell residential units.Since presale buyers are unable to inspect uncompleted units,developers may take advantage of asymmetric information and release information about quality to the market selectively.The search theory also suggests that incomplete pricing information,especially for new products,will induce a less competitive market that is characterised by dispersed presale prices.Would price dispersion be reduced if developers were required to provide more quality and pricing information?In this study,we argue that this is not necessarily the case.We conduct a natural experiment using a new information disclosure ordinance governing first-hand residential sales in the Hong Kong SAR,China.We find that the ordinance reduced the price dispersion of presale units with asymmetric information about property quality,but increased their price dispersion when limited pricing information(e.g.thin trading volume)was available in the neighbourhood.As a critical test,we further show that the ordinance increased price dispersion even more after the units were completed.This suggests that the ordinance has indeed made presale pricing more difficult because developers are no longer allowed to use different strategies to test market demand.

Accounting for the =Subnational Penn Effect＇--A General Theory of Regional and National Price Levels

As an extension of the neoclassical urban systems theory （Henderson, 1974）, we develop a general theory of regional （inter-city） price dispersion which also explains the ＂subnational Penn effect,＂ i.e., cross-city correlations among population size, prices, real income and human capital stock. The model is also a theory of international price dispersion that is observationally equivalent to and more appealing than the Balassa-Samuelson theory, implying that the （international） Penn effect may simply be an aggregate result of the ＂subnational Penn effect.＂ Furthermore, it shows that, contrary to the popular view, economic integration can increase as well as decrease spatial price variation.

The Subnational Penn Effect： Evidence from China

In this paper we estimate relative consumer price levels as of 2008 for 36 major Chinese cities, using an innovative method purposely designed to rectify three main defects of the existing literature, which are （1） the under-representation of marketized services in the sample data, （2） biased consumption weights, and （3） a mismatch between sample classification and consumption weights. Our estimation results show the ＂subnational Penn effect＂ as defined by Tang （2012）, i.e., strong inter-city correlations among population size, the relative price level, per capita nominal and real income, and human capital stock, thereby showing that the theoretical model of inter-city price dispersion proposed by Tang （2012） is applicable in China. Our conclusion, methodology, and estimation results have important implications for various aspects of the Chinese economy including the regional, urban and real-estate economies.