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Buyer Exuberance and Price Premium

Author

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  • Poh Har Neo

    (Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117566, rstnph@nus.edu.sg)

  • Seow Eng Ong

    (Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117566, seong@nus.edu.sg)

  • Yong Tu

    (Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117566, rsttuy@nus.edu.sg)

Abstract

It has been demonstrated that the real estate market disciplines irrational price premiums. However, the persistence of price premiums begs the question of what causes price premiums in the first place. This paper seeks to examine two explanations for price premiums—the conventional information asymmetry explanation and the buyer exuberance explanation as motivated by behavioural studies. The results show that information asymmetry explains price premiums, and this finding is robust across two sub-hypotheses tested—namely, information differences arising from market familiarity and product characteristics. In addition, we find that price premiums are also caused by buyer exuberance, specifically, exuberance arising from representativeness, purchasing power and anchoring effects.

Suggested Citation

  • Poh Har Neo & Seow Eng Ong & Yong Tu, 2008. "Buyer Exuberance and Price Premium," Urban Studies, Urban Studies Journal Limited, vol. 45(2), pages 331-345, February.
    • Handle: RePEc:sae:urbstu:v:45:y:2008:i:2:p:331-345
    DOI: 10.1177/0042098007085966
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    References listed on IDEAS

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    Cited by:

    1. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    2. David C. Ling & Andy Naranjo & Milena T. Petrova, 2018. "Search Costs, Behavioral Biases, and Information Intermediary Effects," The Journal of Real Estate Finance and Economics, Springer, vol. 57(1), pages 114-151, July.
    3. Steven Devaney & David Scofield, 2017. "Do ‘foreigners’ pay more? The effects of investor type and nationality on office transaction prices in New York City," Journal of Property Research, Taylor & Francis Journals, vol. 34(1), pages 1-18, January.
    4. L. Li & K. W. Chau, 2024. "Information Asymmetry with Heterogeneous Buyers and Sellers in the Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 68(1), pages 138-159, January.
    5. Yu Liu & Paul Gallimore & Jonathan Wiley, 2015. "Nonlocal Office Investors: Anchored by their Markets and Impaired by their Distance," The Journal of Real Estate Finance and Economics, Springer, vol. 50(1), pages 129-149, January.
    6. Ka Shing Cheung & Julian TszKin Chan & Sijie Li & Chung Yim Yiu, 2021. "Anchoring and Asymmetric Information in the Real Estate Market: A Machine Learning Approach," JRFM, MDPI, vol. 14(9), pages 1-22, September.
    7. Tianwei Yang & Derek Huo & Lennon H. T. Choy & K. W. Chau, 2023. "The Impact of Measurement and Pricing Cost on Rental Transaction Prices – Evidence from the Institutional Rental Housing Market in Beijing," The Journal of Real Estate Finance and Economics, Springer, vol. 66(1), pages 119-140, January.
    8. Elias Oikarinen & Heidi Falkenbach, 2017. "Foreign investors’ influence on the real estate market capitalization rate – evidence from a small open economy," Applied Economics, Taylor & Francis Journals, vol. 49(32), pages 3141-3155, July.

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