Option effect of land transfer by city governments: a case study of Hangzhou
Journal of Property Investment & Finance
ISSN: 1463-578X
Article publication date: 11 December 2020
Issue publication date: 1 September 2021
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