A Research On Real Estate Investment Evaluation Based On Real Options Approach

It is important for the development of real estate to evaluate the project value. The result is the essential factor to influence the feasibility of the project. Because of the specialty of real estate, the project can't be evaluated rationally by the traditional evaluation method. The traditional evaluation method ignores flexible value; defer value and strategic value in the development of real estate. But real options method overcomes the barriers effectively. It provides reliable basis for the project evaluation.The paper is starting with the disadvantages of the traditional evaluation method, introduces the development of real options theory, analyses the advantages of real options method which compares with traditional evaluation methods, establishes the types of real options and pricing models in three periods of the development of real estate, puts forward the practical framework based on real options. Finally by discussing the cases of defer options and grow options emphatically; tests the effectiveness in applying real options method in the development of real estate. Summing up the paper, the conclusions are as follows:(1)Putting forward real options method is not the easy negation of traditional methods. The values of real options are considered on the basis of applying traditional methods in the development of real estate.(2)Constructing the practical framework based on real options for the real estate project. The decisions rules are drawn up in correspondence with different real options. These rules provide reasonable guides for real estate developers.(3)Establishing pricing models of defer options and grow options. By applying the models in the cases, points out three branches model is more accurate than two branches model.