Real Option Analysis Of Real Estate Development Projects

With the continuous development of China,the real estate industry is also gradually maturing under the guidance of the national norms.With the increasing demand of consumers for housing,the competition in the real estate industry is becoming increasingly fierce.At the same time,in the context of China’s supply-side structural reform,in order to prevent speculators from maliciously bidding up the housing price,curb the real estate bubble,and promote the healthy and orderly development of the national economy,China keeps adjusting its policies,thus increasing the uncertainties in the real estate industry.In this uncertain environment,the traditional real estate project evaluation methods such as cash flow discount method and internal rate of return method are not suitable.Although this kind of method is simple and easy to understand,it neglects the selectivity of investment timing,the uncertainty of future returns and the elastic value of project management,which is likely to lead to the wrong evaluation of the project.As real estate investment has the characteristics of irreversible and deferred options,many real estate developers begin to use real option pricing to make investment decisions on real estate projects.Real option approach in real estate project evaluation not only considered in the project through the traditional analysis method to calculate the value of,also considered the project choice delay in the future,expansion,contraction,give up to continue investment and investment the flexible value of staging,gave the real estate enterprises to control the risk under uncertainty environment,realize the return path.The main contents of this paper include:(1)It introduces the development history and current application status of real option theory,and reviews the research on real option theory related to real estate by domestic and foreign scholars at the present stage.(2)The deficiencies of traditional analysis methods in real estate project evaluation are analyzed.At the same time,the basic theory of real options is introduced.By comparing the advantages and disadvantages of traditional analysis methods,the rationality of real options in real estate project evaluation is highlighted.(3)Two basic models of real options,binary tree model and b-s model,as well as a Geske model,are introduced in detail.The real options of different types are applied to the real estate development,and two real estate development cases in which the author participated are used to analyze the delay options,expansion options and simple compound options.The purpose of this paper is to verify whether the real option model can more flexibly and accurately measure the actual value of real estate projects compared with the traditional investment analysis method,so as to provide reference for the investment behavior of real estate developers.