IDEAS home Printed from https://ideas.repec.org/a/eme/ijhmap/ijhma-02-2017-0022.html
   My bibliography  Save this article

Staging option application to residential development: real options approach

Author

Listed:
  • Kwabena Mintah
  • David Higgins
  • Judith Callanan
  • Ron Wakefield

Abstract

Purpose - Real option valuation is capable of accounting for uncertainties in residential development projects but still lacks practical adoption due to limited evidence to support application of the theory in practice. The purpose of this paper is to use option valuation to value staging option embedded in residential projects and compare with results from DCF to determine which of the two methods delivers superior results. Design/methodology/approach - The fuzzy payoff method (FPOM), a real options model that uses scenario planning approach to generate a range of figures, from which a single-numerical value is computed for decision-making. Findings - The results showed that the use of a range of figures was able to represent uncertainties to a higher degree of accuracy than the static DCF. As a result, the FPOM was able to capture about 3 per cent of the value of the project that was missed by the DCF. The staging option offers an opportunity to abandon unprofitable phases of a project, thereby limiting downside losses. Thus, real option models are practically applicable to cases in property sector. Practical implications - Residential property developers must consider flexibility in financial feasibility evaluation of development because of the embedded value in uncertain property projects. It is important to account for optionality in financial evaluation of property projects for value maximisation. Originality/value - The FPOM has been used for the first time to evaluate a horizontal phasing of a residential development project.

Suggested Citation

  • Kwabena Mintah & David Higgins & Judith Callanan & Ron Wakefield, 2017. "Staging option application to residential development: real options approach," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 11(1), pages 101-116, December.
    • Handle: RePEc:eme:ijhmap:ijhma-02-2017-0022
    DOI: 10.1108/IJHMA-02-2017-0022
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/IJHMA-02-2017-0022/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/IJHMA-02-2017-0022/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/IJHMA-02-2017-0022?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marek Durica & Danuse Guttenova & Ludovit Pinda & Lucia Svabova, 2018. "Sustainable Value of Investment in Real Estate: Real Options Approach," Sustainability, MDPI, vol. 10(12), pages 1-18, December.
    2. Kwabena Mintah, 2018. "Real Options Analysis in Residential Property Development Decision-Making in Australia: Perspective of Executives," International Real Estate Review, Global Social Science Institute, vol. 21(4), pages 473-520.
    3. Jiangang Shi & Kaifeng Duan & Shiping Wen & Rui Zhang, 2019. "Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective," Sustainability, MDPI, vol. 11(7), pages 1-18, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:ijhmap:ijhma-02-2017-0022. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.