Research, Land Reserve Development Decisions Based On Real Option Real Estate Companies

Since 2007, with housing prices rose steadily, the land reserve of real estate enterprises and its price have been taken more and more attention by the industry and the academic. Rich land reserve is a very important strategic resources to the real estate enterprises. If the macroeconomics downturn or the company does not have the capability for sustainable development in temporarily, enterprises can retain or sell the land reserves at a fixable price.Nowadays, domestic research about the land reserves mainly concentrated in the macro system, such as the legal issues about the transfer of land reserves, land reserve system issue of equity, etc. There are literatures from the perspective of real estate companies which explain the importance of land reserves, but they are only in the qualitative level. Based on the land reserve's inherent nature of the options, this paper will first give the concept of the real estates' land reserves at the micro level with the relevant policies. Then it will use the real options theory to analyze the real estates' business strategy of land reserve. Finally, this paper will give the real estate business decision-making process of land reserves with the real options model. Study real estates' strategies of how to use land reserves, such as developing in phases, giving up land reserves and delay the development. It also analyzes the optimal development of land reserves and the delayed value of options, at last gives a specific analytical formula and a case of empirical testing.