Abstract
Compared with that of traditional housing real estate, the development of tourism real estate is time-consuming, complex, and irreversible. It is hard to guide investment decision-making on tourism real estate with the conventional discount cash flow (DCF) method. This paper aims to demonstrate that the real option method can improve and optimize the investment decision-making on tourism real estate. Through case analysis, the real option model, i.e., the classic American real option model, and binary tree value distribution model were adopted to analyze the factors affecting the real option of tourism real estate, optimize the development sequence of tourism real estate project, and demonstrate the phased development value of tourism real state, thereby enhancing the development value of tourism real estate projects. The case analysis proves that tourism real estate investment is fully consistent with real option in the uncertain spatiotemporal attributes: uncertainty, irreversibility, and timeliness. Therefore, tourism real estate project carries obvious features of real option. The decision-making by the real option model is much more scientific and superior than that by the conventional DCF method. Since the application of real option theory has been emphasizing housing real estate over tourism real estate, the research results enrich the theory on real option-based investment decision-making for real estate and expand the application scope of real option.
Highlights
Tourism real estate enterprises still rely on traditional metrics to analyze and evaluate project investment, such as internal rate of return (IRR), payback time, and net present value (NPV) [1]
During project analysis and evaluation, these metrics are theoretically supported by the discount cash flow (DCF) method and suitable for small construction projects requiring onetime investment
By the practice of tourism real estate investment, the author found that very few scholars introduced the theory to other segments of real estate, namely, industrial real estate and logistics real estate by Wu et al [15], especially in the tourism real estate, which still uses the backward NPV method
Summary
Received 28 June 2021; Revised 21 July 2021; Accepted 10 August 2021; Published 19 August 2021. It is hard to guide investment decision-making on tourism real estate with the conventional discount cash flow (DCF) method. Is paper aims to demonstrate that the real option method can improve and optimize the investment decision-making on tourism real estate. E case analysis proves that tourism real estate investment is fully consistent with real option in the uncertain spatiotemporal attributes: uncertainty, irreversibility, and timeliness. E decision-making by the real option model is much more scientific and superior than that by the conventional DCF method. Since the application of real option theory has been emphasizing housing real estate over tourism real estate, the research results enrich the theory on real option-based investment decision-making for real estate and expand the application scope of real option
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