A Study of the Optimal Timing of Land Development

This paper analyzed the effects of option value of on the investment timing of a real estate firm in the housing market. Based on the model´s assumptions and specifications, this paper deduced the option value of land and land development threshold. Further, this paper conducted a comparatively statistic analysis and arrived at some important conclusions. First, there is an inverse relationship between the threshold and land development duration, therefore the developer with smaller land scale is more liable to postpone the project than the bigger firm. Moreover, only if the standard deviate rate of market shock rises to a certain value, more uncertainty will delay investments; when it is smaller, more uncertainty will accelerate the investment instead of delaying the investment.