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This article discusses how apartment prices in Hong Kong are affected by a developer's good will. The homogeneous nature of apartment units there and the hedonic price model make it possible to isolate the effect of a developer's good will. This study finds that, on average, people are willing to pay a premium of at least 7% of the apartment price for a developer's good will. Therefore, appraisers should consider the reputation of developers in valuation assignments. Further, the study finds that developer brand names, which in Hong Kong have not traditionally been used to lure consumers, can offer a very profitable long-term investment. Although the empirical evidence presented here is from Hong Kong, the conclusions can apply to any other market economy.
Residential property can be seen as a package of inherent attributes--tanBible and intangible--valued by consumers. Tangible and intangible attributes are the physical conditions of the property, including size, floor level, age, and so on. Intangible attributes include sea view, a developer's good will, environmental quality, accessibility, and so on. In this study, a hedonic price model is developed to assess the importance of a developer's good will on apartment prices, other things being equal.
Hedonic price analysis is used to study the demand side of housing, assuming that a property is sold as a package of inherent attributes.1 The market prices of housing units are determined based on how a consumer evaluates a unit's bundle of inherent attributes. Hedonic prices are, in fact, the implicit valuations of a housing unit's characteristics, and can be estimated using regression analysis. A hedonic equation helps explain housing prices in terms of its own characteristics (such as size of the flat, age, floor, neighborhood characteristics, job accessibility, etc.), each of which is assumed to be implicitly priced. Zvi Griliches first employed the hedonic price model to study the pricing of heterogeneous fixed assets.2 This analysis was later widely used in house pricing studies to investigate the effects of racial discrimination, neighborhood change, and accessibility to the workplace. The hedonic price model can also be used for studying the physical characteristics of a property-the location of a site in relation to employment centers and other recreational facilities, the social and economic characteristics...