Investments on urban land valuation by real options – The Portuguese case

Gualter Couto, Dulce Martins, Pedro Pimentel and Rui Alexandre Castanho

Land Use Policy, 2021, vol. 107, issue C

Abstract: This study aims to evaluate unexploited urban land in Portugal, for the construction of new apartments, with the real options analysis's contribution, using the Quigg model, adapted to the reality of the Portuguese market. This work defines a value associated with the land, referring to the construction option. This option gives the right, but not the obligation, to build the project at any time. Therefore, the new land value is maximized in the optimal timing to define the best moment to carry out the investment. The study shows that in the Portuguese case, when the time horizon changes from 5 to 10 years, both the value of the deferral options and the global value of the land increase considerably, exposing the deferral options' sensitivity to the time horizon variable in the process of evaluation. Besides, considering the land evaluation process in Portugal, it is possible to conclude that, on average, the deferral option represents 9,09% of the land's final value, varying between 1,40% and 20,10%. The decision to defer the construction of the investment project adds value to the undeveloped land and should be considered in the investment decision-making process.

Keywords: Land valuation; Optimal timing; Real options; Real estate; Urban planning (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264837721002076
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:lauspo:v:107:y:2021:i:c:s0264837721002076

DOI: 10.1016/j.landusepol.2021.105484

Access Statistics for this article

Land Use Policy is currently edited by Jaap Zevenbergen

More articles in Land Use Policy from Elsevier
Bibliographic data for series maintained by Joice Jiang ().