Depreciation, Building Age, and Market Price Statistics for Reference in Urban Redevelopment Option Pricing
Publication: Journal of Urban Planning and Development
Volume 146, Issue 1
Abstract
This study aims to develop a new option pricing model within a two-phase real option framework to adjust underestimation due to depreciation in urban redevelopment projects (approximately 70% bias in a 10-year Urban Renewal Authority standard redevelopment in Hong Kong). The model is applicable to residential buildings owned by multiple residents. This discrete-time model introduces two novel features, namely, constant depreciation rate and annual increase of average building age. Option values are sensitive to the embedded assumption of annual depreciation effect in the market price statistics for reference (market indices or average prices), which facilitates good decision making for redevelopment.
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Data Availability Statement
Some or all data, models, or code generated or used during the study are available from the corresponding author by request, including: Market price and construction cost information used in the data analysis, which is open data from the Hong Kong government and ARCADIS’ Annual Construction Cost Handbook; Transaction information used in the case study (close to KC-009), which is collected from EPRC and Centadata databases; and the program code for this discrete-time redevelopment option model.
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Published In
Journal of Urban Planning and Development
Volume 146 • Issue 1 • March 2020
Copyright
©2019 American Society of Civil Engineers.
History
Received: Jul 4, 2018
Accepted: Jun 18, 2019
Published online: Dec 23, 2019
Published in print: Mar 1, 2020
Discussion open until: May 23, 2020
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