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Asset Value Enhancement of Singapore’s Public Housing Main Upgrading Programme (MUP) Policy: A Real Option Analysis Approach

Author

Listed:
  • David Kim Hin Ho

    (Department of Real Estate, National University of Singapore, 4 Architecture Drive, 117566, Singapore, rsthkhd@nus.edu.sg)

  • Eddie Chi-man Hui

    (Department of Building and Real Estate, Hong Kong Polytechnic University, Hung Hom, Kowloon, 852, Hong Kong, bscmhui@inet.polyu.edu.hk)

  • Muhammad Faishal Bin Ibrahim

    (Department of Real Estate, National University of Singapore, 4 Architecture Drive, 117566, Singapore, rstmfi@nus.edu.sg)

Abstract

The main upgrading programme (MUP) is a major policy implemented by the Singapore Housing Development Board (HDB) since the 1990s. This heavily subsidised policy is highly targeted in order to enhance the social and economic value of public housing in Singapore. It benefits HDB households residing in the older HDB housing estates in terms of both an enhanced asset value of the household’s flat and a quality living environment. An HDB flat owner whose precinct is selected for upgrading under the MUP policy is envisaged to be holding a call option to upgrade his flat, as this option to upgrade is valuable and it has an opportunity to command a higher price in the HDB resale market. This paper estimates the option premiums for upgrading by utilising the intuitive and explicit numerical method solution of the binomial real option pricing model and the Samuelson—McKean closed-form solution. The embedded real option premiums under the MUP policy are estimated at S$10 300 and S$2 000 for the popular three-room HDB flat and four-room HDB flat respectively. It is also found that government subsidies have a significant impact on the option premiums.

Suggested Citation

  • David Kim Hin Ho & Eddie Chi-man Hui & Muhammad Faishal Bin Ibrahim, 2009. "Asset Value Enhancement of Singapore’s Public Housing Main Upgrading Programme (MUP) Policy: A Real Option Analysis Approach," Urban Studies, Urban Studies Journal Limited, vol. 46(11), pages 2329-2361, October.
    • Handle: RePEc:sae:urbstu:v:46:y:2009:i:11:p:2329-2361
    DOI: 10.1177/0042098009342451
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    References listed on IDEAS

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    Cited by:

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    2. Kyungwon Kim & Jae Wook Song, 2018. "Managing Bubbles in the Korean Real Estate Market: A Real Options Framework," Sustainability, MDPI, vol. 10(8), pages 1-25, August.
    3. Drapikovskyi, Oleksandr & Ivanova, Iryna & Renigier-Biłozor, Małgorzata & Źróbek, Sabina, 2020. "How to assess the impact of hope on a change in the use of land on market value?," Land Use Policy, Elsevier, vol. 97(C).
    4. Eddie Chi Man Hui & Cong Liang & Ziyou Wang & Yuan Wang, 2016. "The roles of developer’s status and competitive intensity in presale pricing in a residential market: A study of the spatio-temporal model in Hangzhou, China," Urban Studies, Urban Studies Journal Limited, vol. 53(6), pages 1203-1224, May.

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