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The Beijing Dream Case Solution

Solution Id Length Case Author Case Publisher
959 607 Words (2 Pages) Arthur I Segel, Voon Siang Lee, Jialei Tian, Ying Laura Wang Harvard Business School : 208015
This solution includes: A Word File A Word File and An Excel File An Excel File

Yingtai and Shangbo are concerned about their future choice of living. Apart from the worry of financing, the couple is bothered about the price, type and location of their potential future apartment. The couple is interested in buying a ‘low-end luxury’ three bedroom apartment at a suitable location. Currently, they reside in a small apartment which could not suffice their future needs.

The first issue arises when the couple discovers that the current property market in Beijing is facing a bubble in anticipation of Beijing Olympics 2008. The prices of property can depreciate after that special event. In spite of these factors, the couple should opt for the purchase of new property mainly because of two reasons. Firstly, the luxury property market outlook is stable. Secondly, the specific luxury property market was in a shortage of supply of apartments. This could be the best time to take a step forward or the couple will lose the opportunity of owning their desired ‘economically stable’ property.


Case Analysis for The Beijing Dream

After deciding to buy a property, the couple is choosing a suitable apartment from three shortlisted ones. The couple has a four factor criteria for selection, namely, the desired location, proximity to work, services available and the size of apartment. Among the three shortlisted apartments, the best alternative that caters to all the constituents of the checklist is the Guoxing Guanhu Garden apartment. It has a suitable space and a preferred location coupled with all the required services. The other two apartments are attractive in a certain aspect, nonetheless, as a package they fail to deliver the desired utility as measured by the selection criteria. At the same time, the other apartments demand additional costs for interior decoration and related stuff. These costs, when coupled with the base case value, can substantially increase the cost of apartment.   

 The next step is to determine the loan type that best suits the couple. There are two choices available for mortgage, housing mutual funds and commercial bank loans. The rate offered by the commercial banks is high in comparison with the mutual funds rates. However, In the case of mutual fund, the sole contributor of mortgage, Shangbo, has not made enough contribution to match the mortgage amount. Also, Yingtai has no access to this funding source, which puts much burden on Shango alone to make the payments for the defined benefit contribution.  In the case of a commercial bank, there is a range of values from which the rates can be charged. The couple can take advantage of their parent’s financial assets in this case. If their parents guarantee the future mortgage payment, the rate charged by the bank can be minimized. Also, by not demanding monetary assistance from parents, there is quite a good chance that they will accept the couple’s offer of guarantee. At the same time, their family income and other statistics are in favor of offering them a discounted rate.

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