The effect of market uncertainty on the sale timing of residential development projects

Real option theory indicates that market uncertainty could delay the sale timing of real estate development projects. With the land leasing and project selling data of commercial residential development projects in major Chinese cities between 2006 and 2016, this paper built duration models to test the impact of housing price growth rate volatility and other relevant factors on the sale timing of projects. The results show that market uncertainty could indeed delay the sale timing, but such delay effect would become very limited if housing price is high. Additionally, project and company characteristics could also affect the sale timing. This empirical result indicates that real option theory could not provide sufficient support for the strategy of purchasing the land parcel with high price and delaying the sale timing, and this strategy is a kind of risk investment behavior. © 2019, Editorial Board of Journal of Systems Engineering Society of China. All right reserved.