Measuring the option value of restrictions on transferability of property right

Abstract

The Executive Condominium (EC) Scheme has been put into effort since 1995 as a government’s housing solution for the middle class. Initially, ECs are always sold at a discount to their comparable mass-market private condominiums. This discount is said to result from the bundle of legal restrictions imposed on ECs. This study aims to measure the impacts of the set of legal restrictions on ECs’ property value over time. Comparing and analyzing transactions’ data of ECs and their comparable mass-market private condominium, this study finds that in the long term, ECs’ investors will receive a return of approximately 24% property value- which is equivalent to the option value of the restrictions on property rights placed on ECs.