Articles:
Land Development in Emerging Markets Author: Yuming Li Start Page:
94 Abstract: One
of the most important issues in emerging markets is the timing and
intensity of land development decisions and how these decisions affect
property values. In these
markets, newly developed office space and residential units often
account for a substantial proportion of the aggregate supply of similar
types of developed properties. In this article I use a real option model
to study the land development problem faced by a central planner. The optimal capital intensity, the value of land and the
post-development rents and property values in these markets are
strikingly lower than the corresponding values in the markets where the
demand is perfectly elastic. Furthermore, the optimal capital intensity
and the value of land are most sensitive to the market demand conditions
in the emerging markets experiencing the fastest growth or greatest
uncertainty, or at times when interest rates or construction costs are
lowest. |