60 Motivations behind Property Developers’ Price Cut: “Profit-Sharing” vs. “Sales” Motivations behind Property Developers’ Price Cut: “Profit-Sharing” vs. “Sales” Shang-Hua Lee, Department of Land Economics, National Chengchi University Chin-Oh Chang, College of Technology Management, National Tsing Hua University 1. Purpose/Objective Past studies on Taiwan’s presale and resale housing markets have focused predominantly on housing volume and price, particularly the price-volume relationship between new and presale housing markets, and the price relationship between new and presale housing. Few studies have investigated presale housing in foreign housing markets, and some studies have focused on the casual relationship between buyers and sellers of existing housing in relation to real estate characteristics and bargaining power. However, these studies have failed to identify the key factor affecting the price-volume relationship: the relationship between the discount rate and the sales rate. Taiwan’s real estate market has been declining since the second half of 2014. According to the Cathay Real Estate Index, compared with the same quarter in 2015, the transaction prices of new construction projects in Taipei City in the third quarter of 2016 (Q3 2016) decreased by 20%, and the 30-day sales rate decreased by 27%. Construction companies have changed their marketing strategies to address and overcome this downturn. Analysts from all sectors of society have reached the general consensus that construction companies can boost sales by focusing on price-cutting strategies. “Profitsharing” and “sales” underpin this general idea. The “profit-sharing” perspective considers the discount rate (price-cutting) as the cause and the sales rate as the effect. Because construction companies evaluate return and risk when they make investments, if they anticipate a potential shift in the real estate market, they can take the initiative to lower their prices to maximize their sales rate. By contrast, the “sales” perspective considers the sales rate as the cause and the discount rate (price-cutting) as the effect. The poor sales rate contributes to the high level of inventory and thus an increased financial risk for construction companies. This circumstance forces construction companies to reduce their prices (i.e., to increase the discount rate). In this study, we analyze and determine whether the “profit-sharing perspective” or the “sales perspective” motivates construction companies to reduce prices in Taipei
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