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The Journal of Real Estate Finance and Economics

Erschienen in:

06.06.2018

Land acquisition outcome, developer risk attitude and land development timing

verfasst von: Zan Yang, Shuping Wu

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 2/2019

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Abstract

Based on the matched date of initial vacant land parcels and final completed housing projects in Beijing of China from 2003 to 2015, we investigate the correlations of land acquisition outcomes, developer risk attitude and land development timing. We find that real estate developers’ land acquisition gains or losses relative to a referential land acquisition cost have significant impacts on their decisions of land development timing. Developers will postpone the land development process after prior losses in the land acquisition stage. By introducing behavioral economics into the real option model of land development, we explain this relationship from the perspective of varying risk attitude of real estate developers.

Vorheriger Artikel What Motivates a Developer to Sell before Completion?

Nächster Artikel Herding Behavior among Residential Developers

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A comprehensive analysis of the reforms of the Chinese land market and China’s land use policy can be found in many articles, such as Ding (2003, 2004), Ho and Lin (2003) and Zhu (2004, 2005).

On March 31, 2004, the Ministry of Land and Resources and the Ministry of Supervision jointly issued the “On the Continuation of Business Land Use Rights for Transferring Auction Listing of Law Enforcement Work Notice” (MLR [2004] No. 71).

See the Urban Real Estate Management Act 1994 and its specific provisions (i.e., “Urban Management Practices: Pre-sale of Commercial Housing”).

According to “The Notice about Accelerating the Affordable Housing Project Construction,” issued by the Beijing Municipal Commission of Housing and Urban-rural Development.

As of the end of May of 2015.

It is important to mention that the calculated LV_i is the value of land plot i in year 2015, instead of the specific transacted year of land plot i. By doing so, we hope to capture developer’s risk attitude change in the long term. We will further explain this point later.

According to the estimation of CREIS based on efficient market transaction and price data at city level, we assign the g =15% for our Beijing samples. CREIS estimates the growth rates at the city-tier level, reporting the growth rate g equals to 15% for the first tier cities, 10% for the 1.5 tier cities, 7% for the second tier cities, and 5% for other cities.

The competitive projects are the projects around the land plot i within a buffer with a radius of 3 kilometers, which have been transacted between 2013 and 2015.

Certainly, in calculation of $ {PO}_i^E $, we made a time adjustment to make the real land price and the evaluated land value comparable. We adjusted the LV_{i, 2015} obtained from Eqs. (1) and (2) into the LV_{i, t}, which is the land value of land plot i in the transacted year by using LV_{i, t} = LV_{i, 2015}/(1 + lpi_2015/t). lpi_2015/t is land price change between year t and year 2015 in Beijing based on the Chinese Residential Land Price Index (CRLPI) (Wu et al. 2012).

$ {premium}_i=\raisebox{1ex}{$ land\ {acquasition\ cost}_i$}\!\left/ \!\raisebox{-1ex}{$ reserve\ {land\ price}_i$}\right.-1 $

As the data in this study is from 2003 to May of 2015, for the vast majority of our samples, competitive projects transacted between 2013 and 2015 are transacted after the corresponding land transaction.

We apply the version of the value function based on the cumulative prospect theory, following Tversky and Kahneman (1992).

$ w\left({p}_t\right)=\left\{\begin{array}{c}{w}^{+}\left({p}_t\right)=\frac{P{\left({p}_t\right)}^{\varphi }}{{\left[P{\left({p}_t\right)}^{\varphi }+{\left(1-P\left({p}_t\right)\right)}^{\varphi}\right]}^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{-1ex}{$\varphi $}\right.}}\\ {}{w}^{-}\left({p}_t\right)=\frac{P{\left({p}_t\right)}^{\varphi }}{{\left[P{\left({p}_t\right)}^{\varphi }+{\left(1-P\left({p}_t\right)\right)}^{\varphi}\right]}^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{-1ex}{$\varphi $}\right.}}\end{array}\right. $, where P(·) is the objective probability.

Lambda can be expressed as $ {Lambda}_i=\frac{\phi \left(-{X}_{2i}/{\sigma}_2\right)}{\phi \left({X}_{2i}/{\sigma}_2\right)}, $ where ϕ demonstrates the normal density function.

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Titel: Land acquisition outcome, developer risk attitude and land development timing
verfasst von: Zan Yang
Shuping Wu
Publikationsdatum: 06.06.2018
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 2/2019
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-018-9663-2

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