Research On Investment Decisions Of Realestate Development Project In Land Regulation Policies

The real estate industry always occupies an important position in national economy and is even marked as the barometer of China’s economic development. In recent years, industrialization and urbanization has stimulated the growth of China’s real estate industry.It becomes a popular lucrative market so that many enterprises join and strive to share the market profit. Blind investment and irrational expansion not only causes the overheating investment, the excessive rise in house prices in real estate market, but also brings risks to enterprises’long-term development. To solve a variety of issues, the state has used land regulation policy as the macro-regulation "third hand" and has promulgated a series of land policies, such as the way of getting lands, land costs, land use, the project development time and style limit and so on, to adjust and constrain enterprises’investment behavior in their real estate development projects.Since2011the state land policies has bought downward trends into the real estate market. The real estate enterprises are facing grim situation and are more sensitive to uncertainty factors. Facing the changing land regulation policy and complicated market situation, how to make a correct investment decision that, not only avoiding the land regulation risks but also maximizing investment returns, it deeds a deep research.As a financial derivative, real options can capture the value of the flexibility inherent in the uncertainty. Its flexibility is able to circumvent the constraints and risks of the existing land policy. Therefore, this paper attempts to introduce real options approach into investment decision-making of the real estate development projects as a new idea for real estate enterprises.Start from the status quo of China’s real estate investment and land policy regulation, first this paper points out that the urgent problems what real estate enterprises facing currently is the decision-making of investment timing and investment scale. Through studying the concept, characteristics and influencing factors of real estate development project investment decisions, this paper investigates the defects in the application of traditional investment decision-making methods, analyzes the necessity and feasibility to introduce in real options theory, and then analyzes its categories and applications in development project investment decisions; Then, on the basis of the general real options investment decision-making model, it absorbs in land-holding costs and builds a new model from the perspective of land regulation policy. This model provides investment decision-making rules and the method how to calculate the waiting time and the probability of decision point reaching; Further, the method of determining the preliminary optimal investment scale is also given through establishing an investment income function, which based on the B-S option pricing model; In the last this paper offers the empirical test and parameters sensitivity analysis of an actual case and verifies the validity of the models, and what’s more, it provides a valid reference how to deal with the land regulation and make scientific investment decisions for enterprises.