Optimal real estate development in a competitive market with effects of externalities and developers' reputation

Abstract

When making real estate development decisions, developers would rely on not only the general market conditions at a macroeconomic level but also the specific market conditions, such as externalities of neighbourhood properties and competitorsa?? reputational strength. However, the effects of developersa?? reputational strength and neighbourhood externalities on strategic real estate development decisions have been omitted in the earlier literature. This study proposes strategic decision models in both a deterministic and a stochastic framework to examine the effects of neighbourhood externalities and developersa?? reputational strength on strategic development decisions. Results reveal that externalities and developersa?? reputation positively influence development decisions. The study also empirically tests reputation premiums in residential property new sale prices using actual transaction data in Singapore. Findings show that developers earn premiums on their reputation.