A real option approach for the valuation of switching output flexibility in residential property investment

Mintah, Kwabena; Higgins, David M.; Callanan, Judith

doi:10.1108/jfmpc-05-2017-0017

Cited by 7 publications

(3 citation statements)

References 33 publications

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“…Generally, the basement is used as a utility room for water heating machines, electrical distribution systems, and plumbing systems [16]. However, the house is mainly used as a storage area, a parking area for motorbikes and cars, and a workspace or studio [17,18], as represented in figure 4.…”

Section: Optimizing Excavated Earth Area As a Basementmentioning

confidence: 99%

Excavated Earth Area Maximization as a Basement and Outdoor Living Space on a Sloped Terrain Housing

Pramono

Yuninda

Munir

2023

IOP Conf. Ser.: Earth Environ. Sci.

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The cut-and-fill technique frequently creates a space for housing on sloped terrain. Some developers use the contours of the land on sloped terrain for garden areas instead of developing it into space to reduce production costs when building houses. By developing structures for building reinforcement, this research seeks to use the excavated earth area in the sloped terrain as storage space and outdoor living space. A single case study in a Malang City home situated on a sloping terrain served as the research approach. Primary data were collected through field surveys and customer interviews to determine the design of the room based on space requirements. Secondary data for this study also comes from a literature review. The first step for the architect is to plan the room’s layout following the client’s requirements. The next stage is to choose the foundation for the project by taking the soil’s structure and condition. The final stage is also decided upon the outdoor living space’s finishing material and the furniture for the outdoor room. The final result indicates that the excavated earth area is beneficial as a storage place at the bottom and an outdoor living area at the top. Outdoor living spaces are beneficial because they provide extra space and address home design issues by reducing the spread of airborne viruses like Covid-19. Maximizing excavated earth as a warehouse space and functioning as an outdoor living space is one of the applications of sustainable design in architecture.

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Section: Optimizing Excavated Earth Area As a Basementmentioning

confidence: 99%

Excavated Earth Area Maximization as a Basement and Outdoor Living Space on a Sloped Terrain Housing

Pramono

Yuninda

Munir

2023

IOP Conf. Ser.: Earth Environ. Sci.

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“…Mintah et al [37] used the real options approach for staging option application to residential development. In their consequent study [38], Mintah et al involve the exploration of an optimal strategy for residential property investment in Australia development through real option analysis and valuation of a mixed use investment. Lucius in his study [39] focused on the current research in the area of real option application in real estate project valuation.…”

Section: Literature Reviewmentioning

confidence: 99%

Sustainable Value of Investment in Real Estate: Real Options Approach

et al. 2018

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The issue of application of real option valuation approach in the valuation of investment project is presented in the article in a way in which the flexibility of the project could be included in the process of its valuation. The authors apply the valuation approach in case of a specific investment project in the real estate in the capital city of the Czech Republic—Prague, using the option to expand, to contract, and to abandon the project. The main aim of this case study is to present a practical application of the investment valuation and to construct an option pricing model for real estate investment which considers and integrates as many aspects of the investment and market environment as possible to describe the best situation of the real estate market and its development. The valuation of the investment is carried out using a universally applicable numerical method of binomial trees. The results obtained are subjected to the sensitivity analysis with respect to the discount rate, value of the most influential parameter of the volatility and the input option parameters. The results of the valuation of the project obtained using the real option approach are important mainly for the management of the company in the process of quantification of the present value of future investments. Implementation of managerial interventions enables for optimizing the value of the project not only in case of favourable development of the real estate market, but particularly in case of unfavourable development. Therefore, they are important in order to protect an investor from potential high losses. Finally, the valuation of these interventions increases the present value of the project, contributing to the decision of the corporate management regarding its implementation.

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“…If ROV modelling had been used to evaluate such a project, the value associated with flexibility would have been captured in the profitability analysis. Mintah et al (2018b) also evaluate a switching output flexibility in a high-rise residential project in Australia and conclude that flexibility is valuable because of the long-term nature of investments in the built environment sector. The results of that study seek to justify the upfront costs associated with flexibility investments in anticipation of potential upturn opportunities.…”

Section: Practical Implications Of Studymentioning

confidence: 99%

International Real Estate Review

Mintah¹

2018

IRER

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Studies have demonstrated the potential of real options analysis (ROA) in property development decision-making. However, practitioners have yet to accept, adopt and integrate ROA in property development decision-making in Australia. This paper therefore investigates how Australian residential property developers manage uncertainties and risks, examines flexibility as a risk management tool, and evaluates the receptiveness and acceptance of ROA for decision making. Data are collected through face-to-face semi-structured interviews with twelve participants, and analysed by using thematic analysis. The results indicate that a discount rate is insufficient for managing uncertainties and risks; rather, contingency is used. Receptiveness and acceptance of the RO theory are mixed due to lack of unanimity among responses. Some participants are positive about flexibility, while others are dismissive. Beyond quantitative ROA models, the findings suggest that practitioners are receptive to ROA, but concerns remain over adoption. Flexibility cases executed by some participants in practice indicate that practitioners are subconsciously using ROA. Therefore, it is possible that acceptance and adoption could be achieved in the future. Evidence of the use of contingency as a risk management tool challenges the long-held notions of risk-return relationships in property development and investment. This is initial evidence of qualitative research on ROA in practice within Australian property developments.

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A real option approach for the valuation of switching output flexibility in residential property investment

Cited by 7 publications

References 33 publications

Excavated Earth Area Maximization as a Basement and Outdoor Living Space on a Sloped Terrain Housing

Excavated Earth Area Maximization as a Basement and Outdoor Living Space on a Sloped Terrain Housing

Sustainable Value of Investment in Real Estate: Real Options Approach

International Real Estate Review

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