Understanding land idling as a strategic behaviour: a brief note using the real options approach

One possible explanation for land idling in a rapidly transforming economy can be found by looking at the value of the option to wait and hysteresis behaviour in the land market. If investors assume that the drop is temporary and that its long term prospects outweigh current holding losses, the mark...

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Main Author:	Khalid, Haniza
Format:	Article
Language:	English English
Published:	Malaysian Institute of Planners 2016
Subjects:	HB131 Methodology.Mathematical economics. Quantitative methods HB221 Price
Online Access:	http://irep.iium.edu.my/53613/ http://irep.iium.edu.my/53613/ http://irep.iium.edu.my/53613/ http://irep.iium.edu.my/53613/1/180-356-1-SM.pdf http://irep.iium.edu.my/53613/7/53613_Understanding%20land%20idling_SCOPUS.pdf

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recordtype	eprints
spelling	iium-536132017-04-12T06:54:15Z http://irep.iium.edu.my/53613/ Understanding land idling as a strategic behaviour: a brief note using the real options approach Khalid, Haniza HB131 Methodology.Mathematical economics. Quantitative methods HB221 Price One possible explanation for land idling in a rapidly transforming economy can be found by looking at the value of the option to wait and hysteresis behaviour in the land market. If investors assume that the drop is temporary and that its long term prospects outweigh current holding losses, the market will observe some form of a zone of inactivity i.e., no selling and no additional buying. The fact that landowners elect to keep their valuable land underdeveloped for prolonged periods of time suggests that idled land is more flexible and valuable than what the current market price suggests. If the revenue from farming is insufficient to sustain the activity, land is left idle; although this operational decision is open to continuous revision. The numerical example shown in the paper shows that price of land can be substantially bolstered by the option to wait embedded in land. We argue that land market prices are based on more than the land’s total present value of its future income stream. In a transforming economy, the option to wait and change land-use are especially important to consider. Policy-wise, the government can discourage land idling by ensuring appropriate and suitable zoning of agricultural areas, strong adherence to the zoning conditions/plans as well as more far-sighted land conversion decisions. These efforts can go a long way to reduce the source and degree of uncertainty which is the most important cause of real option premium in land prices. Based on the nature and type of data available, future directions of research should emphasize on empirical testing of real options premium in sale prices of agricultural land. Malaysian Institute of Planners 2016-11-15 Article PeerReviewed application/pdf en http://irep.iium.edu.my/53613/1/180-356-1-SM.pdf application/pdf en http://irep.iium.edu.my/53613/7/53613_Understanding%20land%20idling_SCOPUS.pdf Khalid, Haniza (2016) Understanding land idling as a strategic behaviour: a brief note using the real options approach. PLANNING MALAYSIA: Journal of the Malaysian Institute of Planners, 14. pp. 15-28. ISSN 1675-6215 E-ISSN 0128-0945 http://www.planningmalaysia.org/index.php/pmj/article/view/180/174 10.21837/pmjournal.v14.i5.180
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HB131 Methodology.Mathematical economics. Quantitative methods HB221 Price
spellingShingle	HB131 Methodology.Mathematical economics. Quantitative methods HB221 Price Khalid, Haniza Understanding land idling as a strategic behaviour: a brief note using the real options approach
description	One possible explanation for land idling in a rapidly transforming economy can be found by looking at the value of the option to wait and hysteresis behaviour in the land market. If investors assume that the drop is temporary and that its long term prospects outweigh current holding losses, the market will observe some form of a zone of inactivity i.e., no selling and no additional buying. The fact that landowners elect to keep their valuable land underdeveloped for prolonged periods of time suggests that idled land is more flexible and valuable than what the current market price suggests. If the revenue from farming is insufficient to sustain the activity, land is left idle; although this operational decision is open to continuous revision. The numerical example shown in the paper shows that price of land can be substantially bolstered by the option to wait embedded in land. We argue that land market prices are based on more than the land’s total present value of its future income stream. In a transforming economy, the option to wait and change land-use are especially important to consider. Policy-wise, the government can discourage land idling by ensuring appropriate and suitable zoning of agricultural areas, strong adherence to the zoning conditions/plans as well as more far-sighted land conversion decisions. These efforts can go a long way to reduce the source and degree of uncertainty which is the most important cause of real option premium in land prices. Based on the nature and type of data available, future directions of research should emphasize on empirical testing of real options premium in sale prices of agricultural land.
format	Article
author	Khalid, Haniza
author_facet	Khalid, Haniza
author_sort	Khalid, Haniza
title	Understanding land idling as a strategic behaviour: a brief note using the real options approach
title_short	Understanding land idling as a strategic behaviour: a brief note using the real options approach
title_full	Understanding land idling as a strategic behaviour: a brief note using the real options approach
title_fullStr	Understanding land idling as a strategic behaviour: a brief note using the real options approach
title_full_unstemmed	Understanding land idling as a strategic behaviour: a brief note using the real options approach
title_sort	understanding land idling as a strategic behaviour: a brief note using the real options approach
publisher	Malaysian Institute of Planners
publishDate	2016
url	http://irep.iium.edu.my/53613/ http://irep.iium.edu.my/53613/ http://irep.iium.edu.my/53613/ http://irep.iium.edu.my/53613/1/180-356-1-SM.pdf http://irep.iium.edu.my/53613/7/53613_Understanding%20land%20idling_SCOPUS.pdf
first_indexed	2023-09-18T21:15:50Z
last_indexed	2023-09-18T21:15:50Z
_version_	1777411555395108864

Understanding land idling as a strategic behaviour: a brief note using the real options approach

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