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A distinctive feature of mortgages as assets is the existence of prepayment risk, typically viewed as a borrower’s call option to pay the outstanding mortgage balance at any time during the term. While previous research identified important causes for prepayment, these studies are mostly based on fixed‐rate mortgages, with little work on variable‐rate or floating‐rate mortgages and even less work on prepayment in countries other than the USA. This paper presents an analysis of prepayment based on the historical aggregate pre‐payment experience of a sample of variable rate mortgages in Hong Kong, which func‐tions under a Currency Board Mechanism that determines exogenously the level and term structure of interest rates. With variable rate mortgages, it is expected that there will not be a prepayment incentive with decreases in interest rates, unlike the case with fixed‐rate mortgages. However, we argue that observed interest rate movements remain a key factor that affects prepayment decisions, because current interest changes influence expected future interest rates. Furthermore, drawing on quasi‐rational and behavioral economics concepts, we expect the effect on prepayment of expected upward movement in interest rates to be stronger than that of expected downward movements. Empirical evidence from the adjustable rate residential mortgage sample from Hong Kong supports these expected relationships.

The prevalent practice of construction supply chain (CSC) in developing countries with a focus on Africa was presented in this chapter. Two African countries (South Africa and Ghana) were selected due to the extensive literature on the CSC emanating from the countries. The impediment to the effective management of the CSC in the two African countries was also examined in this chapter. It was discovered that the vital inhibition to the performance of CSC in developing countries is the adoption of culture from developed countries without a proper model for ensuring its implementation in developing countries. Also, no model has incorporated the principles and technologies of the fourth industrial revolution (4IR) to manage the CSC. The failure to adopt the 4IR technologies like block chain, big data and the internet of things has prevented the proper application of CSC practices in developing countries. CSC practices like collaboration, integration, lean supply chain, information sharing, financial management and communication are the primary practice in developing countries. Finally, this chapter called for the development of a model for managing the CSC in developing countries in alignment with the principles of the 4IR.

The purpose of this paper is to examine developers’ optimal development timing when developers are heterogeneous and have different marginal costs in a real estate development market.

This study uses a multiple-player game theoretic real option model and provides tractable results of asymmetric development strategies from a two-stochastic-variable model. Anecdotal evidence and market observations are presented.

Stronger developers (with low marginal costs) exercise real estate development options earlier than weaker developers (with high marginal costs). However, the interval time between developments by stronger and weaker developers decreases in rental volatilities. Real estate with a high positive externality are developed earlier than real estate with a low or negative externality.

Weaker and smaller developers are advised to undertake projects having positive externalities from vicinities. Government agencies are recommended to use tools of zoning and urban planning to prioritise developments introducing positive externalities and to facilitate the growth of weaker and smaller developers. This may subsequently help reduce incentive for land banking and oversupply in real estate space market.

This research is probably the first to explicitly incorporate developers’ heterogeneous strength in real estate development timing options with multiple developers in a competitive market. It sheds additional insights into the understanding of potential problems of development cascades, under the interactive effects between exogenous policy changes and endogenous response from asymmetric developers.

Playing as a global city, to maintain the economic dynamics and urban vitality, Hong Kong government would like to take urban regeneration in urban core as a kind of urban growth strategy. The government monopolizes land supply for urban development through the leasehold system, while the redevelopment agency is authorized to take land acquisition for urban redevelopment. The transformation of agency from Land Development Corporation (LDC) to Urban Renewal Authority (URA) reflected the formation of a coalition composed of quasi-public redevelopment agency and private developer, which facilitates land and property resumption in urban redevelopment. The URA-led projects often tend to redevelop obsolete communities into up-market neighborhoods, which possibly enables redevelopment agency and developers to gain more economic benefits from real estate appreciation. Nevertheless, evidences from some large redevelopment projects conducted by URA in Hong Kong such as Lee Tung Street, Langham Palace and Kennedy Town have presented that urban redevelopment is closely associated with gentrification triggered by displacement of original neighborhood residents. Hence gentrification in Hong Kong has raised more and more concerns about booming housing price as well as fragmentation of social networks. Through urban regime combined with growth machine approach, this paper will explain the collusion of redevelopment agency and private developers that jointly turns the URA-led redevelopment into neighborhood gentrification. And by examining Kwun Tong Town Centre Project (KTTCP), findings indicate that soaring property value will crowd low-income groups and working classes out from their original neighborhoods; and then those gentrified residential estates will be occupied by rich class. Moreover, increasing rent and operation costs will inevitably eliminate those family-operated small businesses; and then they will be superseded by high-end retailing and services. In this way, urban morphology will be reshaped perpetually through more and more gentrified neighborhoods.

Post-disaster housing reconstruction (PDHR) demands a considerable percentage of global property investment, yet the post-disaster environment presents intricate challenges to reconstruction financing for governments and at the same time, revenue uncertainty for private investors. The purpose of this study is to develop a methodology for tackling land shortage and the financial challenges of PDHR in the aftermath of a disaster.

This study developed a methodology based on a combined minimum revenue guarantee and maximum revenue cap model using a well-established real options analysis (ROA) for revenue risk sharing in PDHR projects and land readjustment (LR) for finance. The applicability of the purported model is demonstrated through an illustrative example.

The results show that flexibility in the options could increase the PDHR contractor’s risk profile by increasing the expected value of the contractor investment and reducing the probability of investment loss. On the other side, a cap on the contractor revenue stream would allow the government to benefit from any excess in revenue and would counterbalance the value of the option.

The framework proposed in this study could serve as a practical risk-revenue sharing in PDHR projects. Governments and policymakers could use the findings to enable the successful delivery of PDHR projects and consequently bring the quality of life of affected people to pre-disaster conditions.

This study can be considered as a first attempt toward the use of the Australian barrier style options structure, and the trinomial lattice valuation model in PDHR projects, which incorporates LR, public-private partnerships, governmental guarantees and PDHR concepts in one ROA-based framework.

This paper is concerned with behavioural responses to reviewed ground rents in New Zealand. The focus is on how freehold growth information is interpreted when considering reviewed ground rents on ground leasehold value.

Semi-structured interviews were conducted with ground leaseholders to inform the design of a controlled experiment. The interviews revealed that (a) purchasers tended to directly compare freeholds to ground leaseholds and (b) used rudimentary valuation methods. In the experiment, 40 property investors were requested to estimate the ground leasehold value close to the ground rent review time. Thereafter, 20 of the investors reassessed their ground leasehold value estimate using a projection of the future ground rent and a statement as to freehold growth (treatment). The control group of the remaining 20 investors received the estimate of the future ground rent only.

The tendency for higher treatment group valuations indicated the growth information was too available. Comparing ground leaseholds directly to freeholds, rather than thinking about the cost implications, is attributed to a manifestation of the availability heuristic.

The study involves a typical ground lease arrangement (as verified by experts) in the New Zealand market where there are few protections for ground leaseholders. These findings justify prohibiting new ground leases where the ground rents are set by reference to freehold land value.

This paper extends behavioural theory (availability heuristic) to explaining human interaction with ground leaseholds.

Real option valuation is capable of accounting for uncertainties in residential development projects but still lacks practical adoption due to limited evidence to support application of the theory in practice. The purpose of this paper is to use option valuation to value staging option embedded in residential projects and compare with results from DCF to determine which of the two methods delivers superior results.

The fuzzy payoff method (FPOM), a real options model that uses scenario planning approach to generate a range of figures, from which a single-numerical value is computed for decision-making.

The results showed that the use of a range of figures was able to represent uncertainties to a higher degree of accuracy than the static DCF. As a result, the FPOM was able to capture about 3 per cent of the value of the project that was missed by the DCF. The staging option offers an opportunity to abandon unprofitable phases of a project, thereby limiting downside losses. Thus, real option models are practically applicable to cases in property sector.

Residential property developers must consider flexibility in financial feasibility evaluation of development because of the embedded value in uncertain property projects. It is important to account for optionality in financial evaluation of property projects for value maximisation.

The FPOM has been used for the first time to evaluate a horizontal phasing of a residential development project.

This paper aims to compare and review alternative ways to adjust public ground leases.

Based on principles derived from a review of scientific literature, alternatives for the extension of leases are discussed based on the case of Amsterdam.

Many alternatives lead public ground-lease systems to produce results that are the opposite of what they are intended to be (as inspired by Henry George): new improvements result in higher rent, but additional location values do not result in higher rent. One exception is the lease-adjustment-at-property-transaction alternative, which may nevertheless result in fewer transactions.

Public leasehold systems are highly contested with regard to the extension of leases. Such systems are often aimed at capturing land-value gains. In practice, however, this tends to be more difficult than expected. Value capture by authorities, as intended by the system, results in counter-movements of lessees, who often gain public support to set lower leases. These political processes may even result in the termination of such public ground-lease systems. This paper reports on a search for possible solutions.

The comparison of various alternatives to ground-lease extension based on principles derived from literature is new, and it contributes insight into public ground-lease systems.

The purpose of this study is to explore the skills required by regulatory agencies for effective governance of public-private partnership (PPP) contracts from the perspective of Malaysian regulators. There is a growing literature indicating that there is poor public sector expertise in managing PPP projects.

The study, being an exploratory one, relied on a questionnaire survey of the Malaysian PPP unit (UKAS) and five Malaysian regulatory agencies responsible for regulating service delivery across a number of sectors.

The results of the exploratory factor analysis returned six factor groupings, indicating that the most important skills are procurement, auditing and forensic accounting, lifecycle costing, sector-specific, negotiation analysis and performance management. It was also found that academic qualifications, profession, years of experience and the regulatory agency had no mediating effect on the rankings.

The findings show that infrastructure regulation training programs should be tailored to reflect regional and country-specific characteristics. This is because a similar study with a globalised set of respondents gave a different result from the current study.

There is a growing trend towards remunicipalisations and contract cancellations globally. This is the very outcome that regulatory agencies were created to prevent. Studies including government reports are increasingly pointing in the direction of poor skills set among public sector staff managing PPPs. This lack of capacity has resulted in poor oversight, which now threatens the sustainability of service provision.