WEALTH TRANSFER OF FORWARD PROPERTY DEVELOPMENTS

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 intends to explore the forward risks embedded and how they affect the pricing mechanism of forward properties. The findings suggest that a wealth transfer has been embedded in the pricing of presale properties from the developers to the buyers taking the advantage of the asymmetric information embedded in the forward property developments.