Real options premia implied from transactions in the Greek residential property market: New evidence

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.