Are Move-in Ready Properties More Expensive?

Abstract

A large share of residential properties on sale in developing countries is under construction. This is partly due to lengthy periods of construction. But purchasing under-construction properties can be costly and risky because of construction delays and the possibility of stalled construction. Hence, property sellers would expect buyers to pay higher prices for completed or move-in ready properties relative to under-construction ones. Prolonged construction times can also lead to higher resale prices. Buyers with an appetite for risk might purchase new under-construction properties at lower costs and resell these at higher prices, either when construction is complete, or when market prices increase, or both. In this paper, we use residential property listings data from the six largest urban agglomerations (UAs) in India - Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, and Delhi - between 2010-2012 and estimate the sellers' expected premium for move-in ready properties in each UA. Hedonic regressions of listed prices on property attributes reveal that the expected move-in ready premium is statistically significant in Bangalore, Kolkata, Mumbai, and Delhi, and its magnitude varies between 3-14%. At unconditional average property prices, the move-in ready premium is 23-150% of an average household's income in these UAs. We also find that the expected resale premium is significant and varies between 2-16% in three UAs. The resale premium is partly explained by a higher move-in ready premium among resale properties and possible speculative behavior.