Real estate and real options — A case study |
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| Institution: | 1. Department of Economics and Center for Policy Research, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020, United States;2. School of Economics, Singapore Management University, 90 Stamford Road, 178903, Singapore;1. GRANEM, Agrocampus Ouest, Université d''Angers, France;2. Centre for Rural Economy, University of Newcastle, UK;3. GATE Lyon-Saint-Etienne, Université de Lyon, France;4. Université Jean Monnet, Saint-Etienne, France;1. School of Public Economics and Administration, Shanghai University of Finance and Economics, China;2. School of Finance, Shanghai University of Finance and Economics, China |
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| Abstract: | Real estate investments in emerging economies are characterized by low liquidity, slow payback and high sunk costs; enduring uncertainties about demand, price/m2 and land costs. The introduction of the real options methodology in their analysis considers a housing development as an investment opportunity encompassing several options regarding information acquisition, deferral and abandonment.The model proposed values these managerial flexibilities and shows improved risk management, identifying the optimal strategy (simultaneous vs. sequential) and timing for the construction phases. The maximum rent to pay for the exclusive rights on the land is also determined, a less capital intensive alternative to land ownership. |
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