Journal of Real Estate Finance and Economics, 29:3, 277±294, 2004
# 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
The Wealth Effects of Land Acquisition
JOSEPH T. L. OOI
Department of Real Estate, School of Design and Environment, National University of Singapore,
4 Architecture Drive, Singapore 117 566
C. F. SIRMANS
University of Connecticut, School of Business, Center for Real Estate, 2100 Hillside Road, Unit 1041RE,
Storrs, CT 0629-2041, U.S.A.
We examine the wealth effects of land acquisition using on a unique set of public land auction data in Singapore.
The results of our event study provide evidence of positive excess returns associated with announcements of
successful land acquisition. The evidence also supports the hypothesis that the excess return is related positively
to the ability of the successful bidder to create value from the development process. In addition, the magnitude of
the excess gains is related positively to the level of uncertainty in a development and inversely to the propensity of
the winning bidder engaging in non-wealth maximization activities.
Key Words: land acquisition, wealth effects, real estate development
Real estate development is described as a highly creative and synergistic process in which
``. . . physical ingredients are effectively combined with ®nancial resources and
professional skills, to create a built-environment that is economically sound,
aesthetically pleasing and environmentally responsive. . . . At its best, the development
process is synergisticÐthat is, the ultimate combination of resources has a greater
value than the sum of the individual parts.''
(Miles et al., 1996)
In comparison to the other phases in the property development cycle, the land
acquisition stage is probably the most uncertain and risky part of the process.
Developers seek to create wealth from vacant sites, usually acquired in an under-
developed state and at a substantial cost, by developing them into their highest and best
use. If a development is a positive net present value (NPV) venture, and to the extent
that the positive NPV represents gains to the shareholders of the ®rm, one would expect