On the Strategic Timing of Sales by Real Estate Developers: To Wait or To Presell?

Abstract

In timing property listings, real estate developers can exercise the “option to wait” or “option to presell” to mitigate price uncertainty risk. In this study, we study the effectiveness of both strategies under a unified framework. We test our hypotheses using residential development data from Hong Kong between 1995 and 2015. Empirical evidence shows that when the presale option is unavailable, developers tend to adopt the waiting strategy when facing price uncertainty risk. Conversely, when a presale option is available, developers will accelerate sales when price volatility is high. Moreover, the effectiveness of the presale option depends substantially on government restrictions. Our approach facilitates the identification of the net effect of either tool and provides an opportunity to unify conflicting findings in the literature.