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Forecasting Prices Of Presale Houses: A Real Option Approach

Author

Listed:
  • Ming-Cheng WU

    (Department of Finance, National Changhua University of Education, No.1, Jin-De Road, Changhua 500, Taiwan, R.O.C.)

  • I-Cheng LIN

    (Department of Finance, National Changhua University of Education, No.1, Jin-De Road, Changhua 500, Taiwan, R.O.C.)

  • Yi-Ting HUANG

    (Taiwan Academy of Banking and Finance, No. 62, Sec. 3, Roosevelt Rd., Taipei 100, Taiwan, R.O.C.)

  • Chang-Rong

    (Department of Finance, National Changhua University of Education, No.1, Jin-De Road, Changhua 500, Taiwan, R.O.C.)

Abstract
We are currently witnessing a boom in the real estate industry worldwide, and presale investing (or “Buying Off Plan”, as it is known in Europe) is increasingly popular. This paper conducts a pricing model based on the real option method to assess presale houses. This paper takes into account the ded uctible margins (option premium) and the tax factor to capture the most important characteristics of real-world presale system in house trading markets. This paper finally proposes a closed-form solution for the price of presale house. Simulation results and sensitivity analyses are also examined. The proposed model would help investors to predict and determine the presale house investment.

Suggested Citation

  • Ming-Cheng WU & I-Cheng LIN & Yi-Ting HUANG & Chang-Rong, 2015. "Forecasting Prices Of Presale Houses: A Real Option Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 143-158, March.
    • Handle: RePEc:rjr:romjef:v::y:2015:i:1:p:143-158
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    References listed on IDEAS

    as
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    Cited by:

    1. Marek Durica & Danuse Guttenova & Ludovit Pinda & Lucia Svabova, 2018. "Sustainable Value of Investment in Real Estate: Real Options Approach," Sustainability, MDPI, vol. 10(12), pages 1-18, December.

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    More about this item

    Keywords

    margin; tax; real estate; house trading markets; closed-form solution;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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