Profit allocation in urban renewal: A real options approach

Oliver Shyr and Chen-Fu Wang

ERES from European Real Estate Society (ERES)

Abstract: Urban renewal practices in Taiwan have been criticized for its contribution to urban gentrification and rising housing prices that deteriorates housing affordability. On the other hand, disputes regarding the allocation of profits among landowners and developers may often delay or jeopardize the progress of these renewal projects. The disputes are usually resulted from two reasons: 1) the uncertainty of future housing market performance; and 2) landownersí lack of information on housing markets. The aim of our study is to apply real option to estimate the both the option values and intrinsic values of parcels in Taipei by taking into account the demolition costs and restrictions associated with urban renewal in Taiwan. In the case study we found that landowners would disapprove urban renewal proposals or delay the renewal process if the option premium is much higher than the average market premium. This explains why landowners of the prime real estate locations are often reluctant to approve urban renewal proposals and developer would have to postpone the development project during the period when the housing market is prosperous.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2012-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2012_368

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