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Uncertainty and new apartment price setting: A real options approach

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  • Shi, Song
  • Yang, Zan
  • Tripe, David
  • Zhang, Huan

Abstract

This paper investigates real estate development firms' pricing behaviours in Beijing, China during the period 2006–2008. New apartment prices are set by real estate development firms at the presale stage with widely observed price rigidity. Home buyers are often price takers without much power of negotiation in the price setting process. We find that real estate development firms apply real options theory for new apartment price setting at the presale stage, having regard also to apartments' physical attributes, firms' financial position and other economic conditions. Our results shed lights on the nature of residential real estate development market, in particular how changes in the market uncertainty will affect firms' price setting behaviours.

Suggested Citation

  • Shi, Song & Yang, Zan & Tripe, David & Zhang, Huan, 2015. "Uncertainty and new apartment price setting: A real options approach," Pacific-Basin Finance Journal, Elsevier, vol. 35(PB), pages 574-591.
    • Handle: RePEc:eee:pacfin:v:35:y:2015:i:pb:p:574-591
    DOI: 10.1016/j.pacfin.2015.10.004
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    Cited by:

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    2. Zan Yang & Shuping Wu, 2019. "Land acquisition outcome, developer risk attitude and land development timing," The Journal of Real Estate Finance and Economics, Springer, vol. 59(2), pages 233-271, August.

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    More about this item

    Keywords

    New apartment price setting; Real options theory; Uncertainty;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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