Timing Decision Of Real Estate Development And Sale Based On Real Options

In the past two decades,the real estate industry played an important role in the city development.Real estate developers made a contribution to housing development and urbanization,but during this process,short-term profit-driven behavior has emerged,such as developers' idling valued land by not developing within the specified period and delaying property sale by taking 'multi-phased less supply' sales form.It's necessary to identify the main factors that affect the timing of development and sales which developers decide to solve the developers' behavior of delay in supply for profit.The Real Option theory provides theoretical support for solving the problem of multi-factors affecting the timing,and the survival analysis model is an important empirical research tool to analyze the problem.Based on the Real Option theory this paper analyzes the behavior of the real estate developers in the decision making of the development timing and the sales timing using the Survival Analysis model with the micro data and macroeconomic data of projects and corresponding plots in Hangzhou from January 2006 to March 2017.This paper systematically reviews the theoretical and empirical development of Real Option theory in real estate investment,then summarizes the concept,types and standard framework of Real Option theory.Finally the empirical research model is described.Based on two clues of this paper:the timing of land development and the timing of phased-sales,theoretical predictions and empirical verification are made according to the existing literature.The empirical research of mature real estate market abroad shows that market uncertainty delays the optimal timing of land development and sale.In this paper,through the study of Chinese market,the conclusion is not exactly the same.Study shows one-standard deviation increase in the uncertainty reduces the probability of development by 22.19%,but when market meets declining,uncertainty will lead to the optimal timing of development ahead.The impact of option value on the burgeoning urban areas is more pronounced than in the suburbs.Contrary to the results of timing of development,a one-standard-deviation increase in the volatility of housing price raises the likelihood of sale by 21.83%in the samples of urban.The empirical research on sales timing shows that compared to the region with large information noise,the region with small information noise is likely to sale earlier by 34.18%.In addition,the greater the information noise,the more developers tend to sell in installments.After construction begins,each unit sales period increase makes the probability of postponing sale higher by 8.88%.As to the relationship between development timing and sale timing,the longer the time between purchasing land and construction start,the higher the probability of sale immediately.It reveals that developers make decisions systematically when they choose the timing of construction and sale.The sale behaviors of developers including project duration,have a significant impact on sale price.The sale price of main urban areas increases before a certain time point t(1622 days after purchasing land).After the time t,the sale price decreases with the extension of time.Suburb areas appear opposite results.Therefore,to solve the problem of idle land,government should focus on the rapidly developing urban areas when formulating policies.Meanwhile,government is supposed to make the appropriate adjustments according to different market situations.Government may solve the problem of 'multi-phased less supply' sales through the establishment of an open and transparent information platform,and controlling the sales after the first phase.Most importantly,no matter what kinds of policies,the means of control should be coherent.