Speculative behavior in vacant land development: evidence for real options in Malaysia

Razak, Muhammad Zaim and Khalid, Haniza and Mohamad, Azhar (2018) Speculative behavior in vacant land development: evidence for real options in Malaysia. The Developing Economies, 56 (4). pp. 245-266. ISSN 0012-1533 E-ISSN 1746-1049

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Abstract

The development of vacant land may be seen from a real options perspective—owners of vacant land have the incentive to delay developing the land and keep their options open (keep the lands undeveloped) if they believe that future development will yield higher value. We investigate whether there is speculative behavior with regard to vacant land development in Malaysia. Using samples of 254 vacant plots of lands and 3,681 houses in Selangor, Malaysia, we find that the option premium for vacant lands ranges from 8% to 20% across all areas in Selangor. We posit that the higher option premium for vacant lands is the result of a higher level of speculation by landowners. We also find that, while the option value increases, the intrinsic value reduces the market price of the vacant land. Our findings are indicative of speculative behavior by the owners of vacant land in Malaysia.

Item Type:	Article (Journal)
Additional Information:	3350/67918
Uncontrolled Keywords:	Real options; Vacant land development; Speculative behavior; Malaysia.
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD101 Land use
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr Azhar Mohamad
Date Deposited:	22 Nov 2018 17:17
Last Modified:	14 Mar 2019 11:55
URI:	http://irep.iium.edu.my/id/eprint/67918

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