Asset Value Enhancement of Singapore’s Public Housing Main Upgrading Programme (MUP) Policy: A Real Option Analysis Approach

Kim Hin Ho, Eddie Chi-man Hui and Muhammad Faishal Bin Ibrahim
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Eddie Chi-man Hui: Department of Building and Real Estate, Hong Kong Polytechnic University, Hung Hom, Kowloon, 852, Hong Kong, bscmhui@inet.polyu.edu.hk
Muhammad Faishal Bin Ibrahim: Department of Real Estate, National University of Singapore, 4 Architecture Drive, 117566, Singapore, rstmfi@nus.edu.sg

Urban Studies, 2009, vol. 46, issue 11, 2329-2361

Abstract: The main upgrading programme (MUP) is a major policy implemented by the Singapore Housing Development Board (HDB) since the 1990s. This heavily subsidised policy is highly targeted in order to enhance the social and economic value of public housing in Singapore. It benefits HDB households residing in the older HDB housing estates in terms of both an enhanced asset value of the household’s flat and a quality living environment. An HDB flat owner whose precinct is selected for upgrading under the MUP policy is envisaged to be holding a call option to upgrade his flat, as this option to upgrade is valuable and it has an opportunity to command a higher price in the HDB resale market. This paper estimates the option premiums for upgrading by utilising the intuitive and explicit numerical method solution of the binomial real option pricing model and the Samuelson—McKean closed-form solution. The embedded real option premiums under the MUP policy are estimated at S$10 300 and S$2 000 for the popular three-room HDB flat and four-room HDB flat respectively. It is also found that government subsidies have a significant impact on the option premiums.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:sae:urbstu:v:46:y:2009:i:11:p:2329-2361

DOI: 10.1177/0042098009342451

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