Haunted Houses

Hong Kong is one of my favourite cities in the world and (with apologies to New York City and others) its skyline is hands down the best in the world. But the Hong Kong property market is funny. Most people know that Feng Shui plays an important role for many people in Hong Kong and as a result, many prospective buyers ask a Feng Shui master to evaluate an apartment or building before they purchase it. 

There are famous examples of buildings being despised by the public and many residents because of the bad energy they have. For example, the Bank of China building with its sharp-edged design is said to deflect evil spirits on neighbouring skyscrapers.

Bank of China building at dusk and at night

A tall building lit up at night

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Source: China Urban Development Blog.

Another example is the AIA building in Wan Chai, which had coffin-shaped window frames refitted after it was built to ward off evil spirits. Unfortunately, this building has been scheduled for redevelopment and will not be with us anymore.

AIA Wan Chai Building

A person standing in front of a building

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Source: South China Morning Post.

What I did not know until now is that superstitions run so deep that real estate brokers advertise houses and apartments with a flag to alert potential buyers if they are haunted. Brokers are also obliged to give a straight answer if a customer asks if a unit or a nearby unit is haunted. Haunted houses in Hong Kong are houses where someone died of an unnatural death, e.g. accident (7.1% of all cases), suicide (88.2%), murder (2.0%) or other causes (2.7%). 

If you are trying to sell a haunted house, good luck to you. Utpal Bhattacharya and his colleagues have studied the price impact on houses that become haunted. As you might imagine, an apartment where the previous owner got murdered suffers a big drop in value. On average, units where someone got murdered sell for 34% less than comparable units. If someone committed suicide in there, prices drop by 20% and if somebody dies of an accident, prices decline by 12%, on average. 

But what should really worry you is that nearby apartments on the same floor, in the same block or even the same estate suffer price declines that can be substantial. So, even if you don’t even know the person who died and never even met him, the bad spirits will hand around and may come and haunt your house. And buyers demand a risk premium (or a price discount) to take that unit off your hands. And that is not just in the intermediate aftermath of the accident, suicide or murder. This risk premium lingers on for years after the event (and presumably accumulates if more houses nearby get haunted). So, choose your neighbours wisely. Preferably move into an estate full of young and healthy people.

Price declines for apartments near a haunted unit

A screenshot of a cell phone

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Source: Bhattacharya et al. (2020).