Pricing of pre-sale properties with construction uncertainties

Property developers have increasingly used forward contracts to pre-sell their properties that are under construction in order to enhance their financial viability. This practice is prevalent especially in big cities like Hong Kong in which large-scale housing developments are popular. However, limited research has been conducted to explore the specific risks involved in forward property markets compared to that of spot property markets. This research explored the forward risks embedded in a pre-sale of property and how they affect the pricing mechanism with reference to the forward property market in Hong Kong. Preliminary study on the efficiency of the forward property market has also been conducted which shows that higher volatility is embedded in the market compared to that of the spot market.