August 12, 2022

The seventh month of the Chinese calendar, also known as the “Ghost Month”, is in August 2022. According to popular Chinese belief, people should avoid making major financial decisions during this month, including property purchasing. Buying a house is often the single most important financial decision for many people, and they have to consider various factors before purchasing. However, the extent to which superstitious belief and conspicuous purposes prompt people to pay more for a house is not fully understood.

In “Superstition, Conspicuous Spending, and the Housing Market: Evidence from Singapore” (Management Science, 2020), Assistant Professor Jia He (Nankai University), Associate Professor Haoming Liu (NUS Economics), Professor Tien Foo Sing (NUS Real Estate), Associate Professor Changcheng Song (SMU), and Associate Professor Wei-Kang Wong (NUS Economics) investigated the effects of superstitious belief and conspicuous motive on housing demand in Singapore. They found that higher prices paid for properties with lucky addresses (according to Chinese superstition) can be attributed to both buyers’ superstition and conspicuous spending motive. Additionally, buyers who know about this superstition, even if not superstitious, may still pay a higher price for lucky addresses.

Leveraging on Singapore’s housing transaction records and econometric analysis, the authors found that there was a 1.3% price discount for very unlucky addresses and a 1.9% price premium for very lucky addresses. The price differentials depended on the share of Chinese buyers in the neighbourhood – buyers enjoyed price discounts for unlucky addresses in buildings where the share of Chinese buyers of unlucky addresses was at least 80%.

Furthermore, the study investigated whether the price differentials were attributed to superstitious belief or conspicuous spending. This was done through identifying and examining home buyer behaviour that was correlated with superstition but not correlated with conspicuous motives (such as avoiding registering a firm during Chinese “Ghost Month”), as well as behaviour correlated with conspicuous motives but unrelated to superstition (buying a larger or top-floor unit). The authors concluded that less superstitious buyers have a weaker demand for properties with lucky addresses, whereas non-superstitious buyers spending conspicuously pay a higher price for lucky apartments.

Interestingly, non-superstitious buyers aware of superstitious beliefs, (such as property investors), might still pay higher prices for lucky addresses. Unaware buyers, however, were unlikely to pay a premium. This could be because the former expected to sell their apartments to superstitious or conspicuous buyers in the resale market at a higher price. On the other hand, unaware buyers might still enjoy the benefit of higher resale prices because the largest proportion of buyers in the secondary market are Chinese and might be willing to pay a price premium for lucky addresses. Investors may therefore consider buying properties from market segments where the preferences for lucky addresses have not been priced in and selling to marginal buyers who are superstitious or spend conspicuously.

Read the article here: https://pubsonline.informs.org/doi/10.1287/mnsc.2018.3198