Property Developers’ Pricing Strategies and Time on Market

Abstract: This study aims to investigate the causal linkage between developers’ pricing strategies and time on market (TOM) in the primary market for residential properties, i.e. a market where the seller is a developer or construction company, since this market differs significantly from the secondary or succession market.Regression models are estimated using a dataset from 11 500 newly built apartment units in the Stockholm, Sweden, sold between June 2010 and March 2018. To describe the investigated data and test the hypothesis if overpricing affects TOM a regression analysis was conducted. The Ordinary Least Squares (OLS) technique was applied explaining the size of TOM as a function of changes in a set of characteristics and conditions (independent variables) in one single equation. To measure an objective Degree of Overpricing (DOP), expected price was obtained by using market data and a hedonic price model controlling property attributes and market conditions. DOP is measured as the normalized difference between selling price and expected price.By using a constructed price model when studying the relationship between the price and multiple independent variables, the empirical results show that an increase in variables such as competitive supply, distance from city centre, monthly fee and selling time lead to a decrease in price while higher floor level lead to an increase in price. Looking into the degree of overpricing and its effect on TOM, a Time on Market model was applied. Generally, the empirical results demonstrate that higher DOP results in longer TOM. An increase in competitive supply and monthly fee result in shorter TOM. When it comes to size, smaller apartments seems to sell faster than larger apartments. Different modulations detect varying significances among the independent variables investigated. Overall, the models display a positive correlation between DOP and TOM.The originality and value of this study lies in the analysis of data collected from several development projects. This study is one of the first study that empirically examine the price-TOM relationship in the Stockholm primary housing market.