The Spatial Planning Act of Taiwan was implemented on May 1, 2016. To protect the legal rights of landholders, the Ministry of the Interior stipulated Measures for Compensating Loss Incurred during The Implementation of Spatial Planning in accordance with Article 32, Paragraph 3 of the Spatial Planning Act. Compensation is available for relocation or for alteration, where alteration refers to compensation for losses incurred when constructible land is made nonconstructible by a special municipality or county (city) and the land cannot be built on. It therefore includes compensation for the value of the right to develop the land.
This study is based on the real options valuation model, assuming that the compensation for the alteration of privately-owned constructible land follows a geometric Brownian motion. It proposes a related valuation model, conducts sensitivity analysis, and further employs the Granger causality test to examine whether economic policy uncertainty has a significant impact on compensation for alteration.
This study also provides decision-making recommendations on the appropriate timing for applying for compensation for alteration, along with corresponding methods for assessing trends in average price volatility (σ_s). Taking Taichung City as an example, there is no causal relationship between the Taichung City Land Price Index (LP) and the Taiwan EPU index (TEPU). Therefore, when calculating the option premium (OP), changes in the Taiwan EPU index alone cannot be used as the basis for determining the future trend of σ_s. In such cases, the future trend of σ_scan be assessed by incorporating “economic structural factors” into the analysis of land price determinants.
The valuation model developed in this research provides an objective and comprehensive framework for the compensation for the alteration of privately-owned constructible land, and the findings can serve as a reference for landowners who have suffered losses when applying for compensation for alteration.