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Option effect of land transfer by city governments: a case study of Hangzhou

Ling Zhang (Department of Civil Engineering, Zhejiang University, Hanghzhou, China)
Minghui Zheng (Department of Civil Engineering, Zhejiang University, Hanghzhou, China)
Zheyan Zhang (Department of Civil Engineering, Zhejiang University, Hanghzhou, China)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 11 December 2020

Issue publication date: 1 September 2021

150

Abstract

Purpose

This paper aims to study the impact of land options on the land transfer behaviour of Chinese city governments.

Design/methodology/approach

Based on the institutional environment of Hangzhou, China, the option pricing model is used to measure the option value of the trading plots. The effect of the option value on the land transfer price and the timing of transfers are estimated respectively, using the hedonic price model and the survival analysis models.

Findings

The results show that the option value has a significant explanation on land price and timing of land transfers. Under the effect of option value, the positive impact of fiscal pressure on the possibility of land transfer weakens. From the perspective of the annual option premium rate, the option premium is closely related to the real estate cycle. Option premiums are higher during booms but lower during recessions and in new urban areas.

Practical implications

By revealing the distinction of land option premiums in different places and times, this paper provides a reference for city governments seeking a balance between real estate regulation and obtaining more land revenue.

Originality/value

By introducing policy variables that reflect the degree of tightness of real estate regulation and indicators of local government financial pressure, the paper discusses the impact of options on the transfer behaviour of local governments in different situations.

Keywords

Acknowledgements

The authors would like to thank the editor and the anonymous reviewers for the positive and constructive comments and suggestions.

Citation

Zhang, L., Zheng, M. and Zhang, Z. (2021), "Option effect of land transfer by city governments: a case study of Hangzhou", Journal of Property Investment & Finance, Vol. 39 No. 6, pp. 510-524. https://doi.org/10.1108/JPIF-09-2020-0108

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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