Sustainable Value of Investment in Real Estate: Real Options Approach
Abstract
:1. Introduction
Literature Review
2. Methodology and Data
Process of Investment Evaluation
3. Results
3.1. Net Present Value of the Investment Project
3.2. The Evaluation of the Project Flexibility
- In case of expansion of the project in the node P, following Equation (2), we get
- In case of contraction of the project in the node P, following Equation (3), we get
- In case of abandonment of the project in the node P, following Equation (4), we get
- In case the project will continue in the original range in the node P, following Figure 1, we get
- In case of expansion of the project in the node O, following Equation (2), we get
- In case of contraction of the project in the node O, following Equation (3), we get
- In case of abandonment of the project in the node O, following Equation (4), we get
- In case the project continues in the original range, we will use the discounted weight average of the present values of the expected cash flows in the nodes T and U so that
3.3. Sensitivity Analysis
4. Discussion
5. Conclusions
Author Contributions
Funding
Conflicts of Interest
References
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Flat | Location | Area in m2 | Price in Millions CZK | Monthly Rent in CZK |
---|---|---|---|---|
1 | Křenická (Praha 10) | 65 | 3.85 | 16,000 |
2 | Pod Strání (Praha10) | 65 | 4.63 | 18,000 |
3 | Sekaninová (Praha 2) | 51 | 3.59 | 14,000 |
4 | Biskupcova (Praha 3) | 54 | 3.89 | 15,000 |
5 | Bořislavka (Praha 6) | 52 | 4.19 | 15,000 |
Total | 20.15 | 78,000 |
Description | Parameter Value |
---|---|
Purchased price of the flats and their equipment. | millionsCZK |
Monthly flats rents without energy. | 78,000 CZK |
Monthly costs of the maintenance and insurance. | 7500 CZK |
Corporate income tax. | 19% p.a. |
Annual growth coefficient (inflation rate). | 2% p.a. |
Option | % of Initial Investment | Amount in Millions CZK | Description |
---|---|---|---|
Expansion | 19% | Additional investment. | |
Contraction | 23% | Sell-off price of a single flat. | |
Abandonment | 25% | Trigger value for selling off all flats. |
Types of the Real Options | ||
---|---|---|
without real option | 0 | 57,176 |
expand | 537,606 | 594,782 |
contract | 623,473 | 680,649 |
abandon | 644,089 | 701,265 |
contract and abandon | 920,694 | 977,870 |
expand and contract | 1,161,088 | 1,218,264 |
expand and abandon | 1,181,694 | 1,238,870 |
expand, contract and abandon | 1,458,319 | 1,515,495 |
Input | Tested | Change of | Effect on Partial Options | ||
---|---|---|---|---|---|
Parameter | Range (in %) | Dependence | Range (in Millions CZK) | Parameter Value | Type of Partial Option |
Volatility | direct | - | Value of all types increases. | ||
Sell-off trigger value | indirect | above 42% | Value of abandonment option is zero. | ||
Factor of expansion | direct | below 10% | Value of expansion option is zero. | ||
Factor of contraction | indirect | above 30% | Value of contraction option is zero. |
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Durica, M.; Guttenova, D.; Pinda, L.; Svabova, L. Sustainable Value of Investment in Real Estate: Real Options Approach. Sustainability 2018, 10, 4665. https://doi.org/10.3390/su10124665
Durica M, Guttenova D, Pinda L, Svabova L. Sustainable Value of Investment in Real Estate: Real Options Approach. Sustainability. 2018; 10(12):4665. https://doi.org/10.3390/su10124665
Chicago/Turabian StyleDurica, Marek, Danuse Guttenova, Ludovit Pinda, and Lucia Svabova. 2018. "Sustainable Value of Investment in Real Estate: Real Options Approach" Sustainability 10, no. 12: 4665. https://doi.org/10.3390/su10124665
APA StyleDurica, M., Guttenova, D., Pinda, L., & Svabova, L. (2018). Sustainable Value of Investment in Real Estate: Real Options Approach. Sustainability, 10(12), 4665. https://doi.org/10.3390/su10124665