Economic perspective on outsourcing of property management services

The purpose of this paper is to identify the economic forces influencing the outsourcing process of property management services, and investigate how these forces should be applied in order to maximize the productive efficiency and performance quality, thus ensuring optimal use of resources.

Market competition and transaction monitoring were identified to be the fundamental factors. Single‐case study method was used to quantitatively examine the impact of these economic forces on the outsourcing of property management services of the Hong Kong Housing Authority.

The property services market was contestable, and through competitive tendering the level of competition had a significant negative impact on production cost and a significant positive relationship with service quality. Fee level was also found to have no significant effect on service quality. Professional maintenance services were found to be complex and associated with significant transaction costs, especially where there was a high degree of contact with tenants.

The outsourcing strategy forms a conceptual baseline on which further research can build to test its significance in many other settings, thus resulting in a more robust economic theory for outsourcing of property management services.

Competitive tendering should be adopted for outsourcing to minimize production cost and maximize service quality. The overall transaction costs should be minimized by focusing the limited resources on monitoring of the complex professional maintenance services, especially the services for major planned maintenance works where there are many occupiers involved.

The confirmatory tests indicate that the strategic objectives of cost and quality improvement from outsourcing, as expected by the stakeholders, can be achieved. Hence the research contributes to the property management practice by developing an economic strategy which optimizes the use of resources for the benefit of corporate organizations which own a property portfolio, whilst at the same time satisfying the power and needs of the tenants and other stakeholders.