Urban Demolition Compensation Research Based On Real Options

Urban housing demolition is an essential task to accelerate the urbanizationdevelopment process of China, collective events and social contradictions arising fromirrational compensation for demolition have become increasingly prominent issuesaffecting the urban demolition process. Hence, developing a scientific and reasonablecompensation standard has turned to the top priority of urban demolition worknowadays. Major approaches adopted in the current appraisal process reckon withoutthe impact of future uncertainties on house value, in addition to their own limitations.However, the real option theory can make up for the defect of traditional appraisalapproaches.Proceeding from the uncertainties faced by house owners, this paper examines thereal-option-based price evaluation method for urban housing demolition while takinginto account the term of urban housing. Paper first analyzes the current situation and theproblems of urban house demolition, on the basis of a large number of literatureresearch, house can be deemed as a finite American-style call option with rent as theunderlying asset, in accordance with the characteristics of options that exist in the house.Also, it takes the practical data of Xi’an as an example, and compares the valuation of apiece of land in demolition separately with the real option method and traditionalappraisal approaches, which finds out that with uncertain future revenue underconsideration, land price defined by the real option method is greatly different fromtraditional evaluation approaches, and through comparative static analysis to get the rentvolatility was positively correlated with rental housing rent threshold value and thevalue of the houses; Rental growth rates and home values were positively correlated,but negatively correlated with rental housing rent threshold. As a further exploration in the evaluation of urban housing removal, this kind of appraisal method is aimed atoffering a more scientific and reasonable way to appraise urban house displacement aswell as some references for government organs in formulating valuation policies forsuch land, and therefore it is of certain theoretical significance and great practicalsignificance.