Abstract
This paper empirically explores various efficiency aspects of real estate and construction companies in Iran in light of their remarkable growth in recent years. The technique used to measure the efficiency is DEA and the sample is taken from the construction and real estate companies in Iran. Results from our analysis reveal that most of the real estate and construction companies in Iran are generally technical, scale and mix efficient. However, they are less cost efficient due to increasing higher cost of production. The sensitivity analysis results also suggest that the real estate and construction companies are experiencing diseconomies of scale. As Iran is an underdeveloped market and is currently one of the most interesting frontier markets in the world, this research contributes substantially to investors and multinationals (who have growing desire to gain exposure in this market) by providing current information about the efficiencies of real estate and construction companies in Iran. In addition, this research also provides some institutional voids on how to penetrate market environment in Iran through real estate development.
Highlights
Real estate and construction industry is an important pillar of Iran’s economy
While the Data Envelopment Analysis (DEA) application to real estate efficiency context may not be new, past researches had primarily focused within the internal operational analysis; in contrast, our study had discriminated against various efficiency sources which further connote the overall cost competitiveness of the organizations
From the DEA models presented in prior sections, we see that scale efficiency is defined as the ratio of CCR and VRS, whereas mix efficiency is the ratio of slack based model (SBM) and VRS efficiencies
Summary
Real estate and construction industry is an important pillar of Iran’s economy. A recent statistics provided by GMID (2011) indicates that real estate and construction sector contributed about 17 percent of Iranian Gross Domestic Product (GDP) over the period of 1995-2009. Private sector investment in buildings in urban areas increased from 7,555.4 billion Rials in 1995 to 313,728.6 billion Rials in 2008. The large development of this sector is profoundly due to urbanization and population growth which have created high demand for land and residential properties. The development in the Iranian property market has drawn the attention of most stock market investors to the property securities. The property price index increased and the property stock holders benefited over the period of 2008-2010 (see Figure 1)
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