The Effect Of Market Uncertainty And Developers’ Expectations On Land Price

The scarcity, externality and option features increase the value of land andcomplicate the mechanism of land market. Land market in China is characterized bygovernment monopoly as well as special regulations. Many special phenomenaappears in the land market, for example, much higher land prices than housing pricesaround, and high deviation from the benchmark price. These phenomena triggered aseries of land market policies. This suggests the complexity of land supply, demand andprice mechanism and requires further investigating. By considering the critical roles ofdevelopers in the formation of land price and the central impact of the uncertainty andexpectations in the developers’ decisions, the thesis analyzes the effect of developer’sexpectation and uncertainty on land price. Moreover, the thesis also discusses thepolicies on land grant.Based on the theory of land price fluctuation and land price determining,the effect of expectations on land price is studied from both the macro and microperspectives. The theoretical analysis in the thesis suggests the effect ofdevelopers’ expectations on future housing price on land granting price in theshort and long term. It also indicates that the uncertainty of housing price is themain reason to land premium. Empirical tests are implemented using the paneldata model and hedonic model. Land premium is further estimated by thecontinuity real option model. The empirical analysis of this thesis shows that:1)The expectation on housing price growth has a significant influence on landprice and the expectation on urban growth is capitalized in land price. The highbid land prices offered by the developers can be explained by their expectations.2) The option premium of residential land is more than20percent in Beijing in2009. The option value of residential land is higher than its granting price.3)The potential residential project around the parcel has significant inhibitoryeffect on the option premium of the granting parcel.Based on the theoretical and empirical studies, the land grant regulationsare discussed from the owner right and use right of the parcel, the scale of oneparcel and introducing competition mechanism. This research provides fundamental investigation on the mechanism of land price and providestheoretical framework for government measures on land price and real estateprice.