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Speculative Behavior in Vacant Land Development: Evidence for Real Options in Malaysia
Author(s) -
Razak Muhammad Zaim,
Khalid Haniza,
Mohamad Azhar
Publication year - 2018
Publication title -
the developing economies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.305
H-Index - 30
eISSN - 1746-1049
pISSN - 0012-1533
DOI - 10.1111/deve.12184
Subject(s) - speculation , incentive , value (mathematics) , yield (engineering) , business , perspective (graphical) , land values , natural resource economics , land development , option value , economics , land use , agricultural economics , finance , market economy , materials science , civil engineering , machine learning , artificial intelligence , computer science , engineering , metallurgy
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.