| Risk has a lot of kinds of definitions and different people have different views. It was said that the word "risk" was known in the English language in the 17th century. It is believed that the word was originally a sailor's term that came from the Spanish and meant "to run into danger or to go against a rock". Risk has been defined as a measure of the probability, the severity, and the exposure of all hazards in an activity. Risk implies the occurrence of an undesirable result (i.e., incurring a loss)—it is the chance (probability) that an adverse event occurs during a stated period of time (Edwards and Bowen 2000). The riskier the activity is, the costlier the consequences if the wrong decision is made; The more valuable the consequences if the useful decision is made on the contrary. Risk cannot be totally avoided, but the rational choice can be made so that risk is minimized. The thesis is mainly concerned with research on the evaluation methodology of investment risk for real estate based on risk return rate.Real estate projects have many inherent uncertainties that are not only from the unique nature of the project but also from the diversity of resources and activities. The real estate investment is facing some complicated risky factors, which cause probably severe consequences because of the characteristic of the real estate investment—long investment period, large amount of investment money, unmovable investment place and complex investment risk factors. The risk because of inherent uncertainties is called as unsystematic risk, including operational and management risk, financial risk and technology risk; while the risk because of external uncertainties is called as systematic risk factors, including social risk, natural risk, and political risk, etc. The larger the scale and complexity, and the longer the time frame of a real estate project, the greater will be the impact of risk, since the degree of uncertainty and severity are harder to assess. In the context of this thesis, risk is defined as the probability that an owner's investment in a real estate project might not attain the required measure of probability, yet the risk profile is the distribution of the probability of different profitability level being attained in the project. A real estate investment project is idealized as a set of interdependent development, design, construction and commercial activities, each with an associated payment (a cost or revenue) and duration. Risk evaluation is the process of analyzing and measuring therisk profile and the feasibility of the project investment subject to the variability of the systematic risk and unsystematic risk for the reference of the investors' decisions. The thesis introduces unsystematic risk and systematic risk based on the characteristics of the real estate investment project and several common probable risky evaluation methods, such as break-even method, sensitivity analysis and Monte Carlo simulation firstly. Then the traditional real estate investment risks evaluation method can't meet the needs of real estate market with increasing fierce competition without taking account of the risk factors, so it introduces the risk variation coefficient and beta coefficient in investment, revises the calculation formulae of base earnings and net present value, and brings forward real estate investment risk evaluation method involving risky return rate on the basis of the capital asset pricing model (CAPM)—a risk-based model used in assessing an asset's fair value via its "beta" or correlation with the "equilibrium" market portfolio. Next it discusses the methods including arbitrage pricing theory (APT), option theory and so on, which improve CAPM based on the analysis of hypothetical conditions thirdly. Finally it applies economic value added (EVA) including mindset, motivation, management and measurement to risk evaluation in real estate investment compared with... |
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