Selling New Condos More Efficiently

By TAN Kee Wee
(MediaCorp 938LIVE’s Money Talks, Thursday, 6 August 2009, 7.50 am and 7.20 pm)

The price mechanism should resolve most issues between buyer and seller. When it does not, there will be unhappiness.

For instance, when demand exceeds supply in the launch of a condominium, we queue and apply the “first come first served” principle. There are many pros and cons of this principle.

Buyers at the back of the queue, who want to pay more, will be unhappy. Property developers will also be unhappy because they could have asked for higher prices.

One way around this is to conduct a lucky draw, or “ballot”. Here, the lucky ones get their units. However, there are still the unhappy ones who were not picked.

The developer’s unhappiness is not any less. But at least, knowing his customers better in a lucky draw, he could adjust prices upwards in the second phase of the launch.

Of course, the ideal situation for the developer would be if he knows exactly how much each buyer is willing to pay. Then he would sell them at those prices and maximize his profit. In effect, two buyers could pay different prices for similar units.

This process of selling each unit at the price each buyer is willing to pay can be considered more efficient. However, it is only possible if the developer can read the buyer’s mind.

Over in the stock market, or in markets with computerized trading platforms, reading the buyer’s mind is possible using super computers. This is the world of high frequency trading. It is the hot new thing on Wall Street, accounting for half of all trades.

In this new marketplace, Wall Street’s super computers can scan dozens of markets simultaneously and execute millions of orders a second before we can even blink.

Most importantly, these super computers can probe into the counter party’s computer and gather information on his intentions.

For instance, let’s say that you want to buy 100,000 shares of XYZ company at any price up to $8.50, or a limit order of $8.50. But the market price is $8.30.

Immediately after you key in your intention, these super computers will probe and detect your limit order and move the price up. Within the blink of an eye, enough XYZ shares will appear for you to buy at $8.50.

A couple of years ago, before high frequency trading, if you entered a limit order, most of your order would be filled near the lower price. Today, your order would be filled near the higher price.

These super computers make enormous profits buying low and selling investors like us high, over and over again. It’s like insider trading in split seconds.

Retail investors can’t compete. Some say it’s not a level playing field. But this is what we face today. Those who support high frequency trading say that it’s more efficient because buyers are paying what they want.

If such efficiency is desired in the property market, then the next condo should be launched through a bidding process on the internet. Before the bidding date, anyone can view the showroom and inspect the plans. But the transactions happen from the bidding date.

The good thing is that many rich buyers who are willing to pay more will get the units they want. The advantage to the developer is that his profits will be maximized. The disadvantage is that many people, who are just surviving, will say “It’s daylight robbery!”