Pricing Relocation-Redevelopment Projects for City Expansion - The Case in China

Abstract

A solution to city expansion under limited land availability is relocation of existing habitants, demolishing existing buildings, and redevelopment of new buildings. In the case of Chinese cities, however, such strategies have become a channel for municipalities to increase their revenue from sale of land and productivity from increased development, at the expense of low compensation to former occupants and vacant housing after development. We utilize a sequential real options pricing approach to find conditions of when relocation/demolition and when redevelopment in a finite time horizon are optimal, and to show what factors the governments can influence to delay or speed up redevelopment.

Keywords: sequential options, relocation, demolition, redevelopment, government policy