Abstract
This paper provides an in-depth examination of various concepts related to the forms and sources of uncertainty, as well as the management of uncertainty in real estate development (RED). The study also examines factors influencing the adoption of Real Option Analysis (ROA) in RED given the need to improve the knowledge of stakeholders in RED appraisal, and to ensure best practices. Based on desktop analysis of past authors’ perspectives, orientations and submissions regarding the management of uncertainty in RED appraisal, the findings reveal that while there are varying forms and sources of uncertainty in RED appraisals, there are also diverse methods used to manage the uncertainty of it. It is, however, noted that the methods employed are dependent on RED appraisers and other institutional factors. The consensus from previous studies favours ROA in managing uncertainty in RED. This paper adds to the debate for the need to embrace ROA in managing the effects of uncertainty in RED appraisal.
Highlights
The nature of investment in real estate by institutional and multinational investors over time has been concentrated largely on direct real estate assets; owing to the seeming prospects and benefits of huge returns (PricewaterhouseCoopers & the Urban Land Institute, 2013; Ekpenyong, 2015)
While real estate investment is fixed both in time and space and involves significant capital outlay, its ability to provide investors with the expected return is subject to an array of sources from which uncertainty
This paper gives a global overview of the management of uncertainty in Real Estate Development (RED) appraisal. It provides a comprehensive review of the concepts related to forms, sources, and management of uncertainty and the factors influencing the adoption of real option models in RED appraisal
Summary
The nature of investment in real estate by institutional and multinational investors over time has been concentrated largely on direct real estate assets; owing to the seeming prospects and benefits of huge returns (PricewaterhouseCoopers & the Urban Land Institute, 2013; Ekpenyong, 2015). The traditional approaches to RED appraisal are not adequate to serve as decision criteria under uncertain conditions, especially in emerging economies, which typically have greater uncertainty and market volatility Studies such as Carmichael et al (2011), and Sattarnusart (2012) have advocated for the adoption of Real Options Analysis (ROA) as a method that incorporates management of uncertainty in RED appraisal. This paper gives a global overview of the management of uncertainty in RED appraisal It provides a comprehensive review of the concepts related to forms, sources, and management of uncertainty and the factors influencing the adoption of real option models in RED appraisal. The last section examines the factors influencing the adoption of ROA in RED
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