Understanding Commercial District Development in Guangzhou: A Real Option

Hao Wu and Richard Reed

ERES from European Real Estate Society (ERES)

Abstract: This paper uses the concept of real option to match and explain some of the observed behaviours in the NPRC development program in Guangzhou with reference to office supply. The observed supply lag and the persistent use of residential property for office space in inner-city areas are examined, with the focus placed on the role of the state as the land owner with control over the progress of the large-scale inner-city property development program (i.e. the new CBD development program). This study offers an alternative insight into the development behaviour of Guangzhouís new CBD in the economic transition, linking state-led land release and management policy with the behaviour of the development industry, which has an overall effect on the commercial property cycle in Guangzhou. The state not only considers subject developmentís best market value (e.g. maximised NPV) but also considers the balance among different commercial centres in the city. In a less competitive market system like this, it has the opportunity to achieve higher operational efficiency, but also has the potential to lead to more wasteful use of land and financial resources. It is hoped that by using OVT and undertaking specific adjustments to reflect the ëreal lifeí scenario in China, there is an opportunity to optimise land value and land market efficiency in commercial districts as well as neighbourhoods such as a mix-use sports precinct. Accepting this as a serious issue is the key to effective policy-makings which is important at the early stage of the economic transition.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2007-01-01
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