Abstract
This study examines the empirical predictions of a real option-pricing model
on market values from the residential property market of Greece. Using
transaction-level real estate data from the Property Transfer Value Registry,
that range from 2017 to 2024, we provide evidence of the existence of real
options premia in recent land transaction prices from the Greek real estate
market. More specifically, we compare land values from a discounted cash flow
approach, which does not consider the option to wait to develop, with the
values from a real options model. Our results show that land transactions in
our sample seem to reflect a premium for the option to wait. Therefore, a model
which incorporates this option has explanatory power on observed prices over
and above the intrinsic value from a discounted cash flow approach. Our study
focuses on the recovery period of the residential property market after the
financial crisis, which is characterized by a lack of supply of new residences
and increased demand, partly fueled by the expansion of the short-term rental
market and significant foreign investment. To the best of our knowledge, this
study is the first to utilize the dataset from the Property Transfer Value
Registry, which is the only available database of transactions in the Greek
property market, in order to test the predictions of a real options model.