The Research Of Real Estate Project Investment Decision-making Based On Real Option Theory

Real estate industry, as the leading industry of the national economy, is playing an important role in economic development of China. Real estate industry is a typical capital-intensive and high-risk industry with the characteristics of big investment, long construction period, long supply chain and regional restrictions. In recent years, as the increase of market demand and the government's policy support, real estate companies emerge in large numbers, making the real estate market competition is increasingly fierce.Therefore, the urgent problem to solve is how to carry out the real estate project investment decision-making, risk aversion to the greatest extent, create benefits for the enterprise, and make investment decisions scientifically.Traditional method for decision-making of real estate investment project mainly include discounted cash flow technique, investment, internal rate of return(IRR) method, payback period analysis method, etc. These decision theories rely on strict assumptions. Since the development of real estate market has become increasingly complex, making these theories can not meet the needs of real estate enterprise to make investment decisions. For many years, with the continuous development of the real estate market, it has been obvious that real estate investment decision-making can be delayed, and is also expansionary and flexible in operation management. Real option theory, as a kind of brand-new concept, is being widely used in project investment decision-making, enterprise value assessment and other fields.This article introduces real option theory and its application in the project investment decision-making of B- S model and binary tree model. The author introduces real option theory of real estate investment project to undertake business accounting, finally came to the conclusion that after introducing the theory of real option, there can be a significant increase in investment value of real estate investment project. Through this study, the author believes that the real option theory is theoritically advance in spite of its current defects and it can be widely used in real estate industry for decision-making of investment projects.