Study On The Investment Decision-making Model Of Real Estate Enterprises Under Uncertainty

Compared with the economic structural reform of China, the reform and transition of real estate industry started later than it should. The market-oriented real estate industry of China is only in her twenties. Nevertheless, she grows fast and has now become a pillar industry of China's economy. As the principal part of real estate, the real estate enterprises must have realized the following situations. On one hand, real estate enterprises will easily become irrational in investment under the general background of this industry. And it is just the irrational and blind investment that has caused the ups and downs in real estate market of China in the year of 1992 and 1993. On the other hand, with the further reform and opening up of the market, the competition turns to be more and more fierce, and the real estate market become more sensitive to uncertain factors. At this crucial period of China's real estate industry, this paper aimed to provide the theory, method and model for decision-making in real estate investment through an all-round research of uncertain factors.Through the research of investment rules, this paper tries to solve the problem that whether should enterprises invest and how to optimize the investment under the influence of uncertain factors. A conclusion is also reached that the traditional NPV investment analysis model cannot provide a reasonable solution for this problem. Because it ignored an important factor that investment decisions could be implemented through flexible management, which include postponement, conversion, abandonment and expansion, etc. Real option theory can give a reasonable solution to this kind of flexible management. Therefore, this article conducted a research on the decision-making model of real estate investment with real option theory and method as guidance.Due to the fact that there's not a clear distinction between the use right of land and the ownership of land in China (and this situation will last for a long time), the ways real estate enterprises acquire the land are divided into two types, which are agreement type and bidding type. And this decides the two types of investment decisions. Generally, real estate project——the bidding capital cannot be traded, so its price will not be found in the market. For this reason, this article tries to find out first the factors that influence the value of real estate project. For example, the product of real estate project is an important factor, meaning the price and cost of commercial housing. Factors like the commercial housing can be traded and thus can be measured. So a reasonable function can be made and the price of agreement type and bidding type could be fixed with the methods of the perpetual American option pricing and American option with limited horizon pricing. Thus the basic decision-making models for real estate investment can be established.Due to the influence of uncertain factors in real estate projects, such as government policy, development cycle, land expenses, costs in civil engineering, vicissitude of city and so on, and according to the importance of these uncertain factors in investment decisions, different decision-making models are established, which are policy-oriented model, uncertain price and cost model, multiple stages model and option switch model, etc.In consideration of both uncertain factors and competitive factors, real option game model is established, which bring forward the option game model and analysis method under continuous time. This provide as guidance to most strategic analysis of real estate investment. A basic model and investment rule of option game under duopoly are also put forward.Referring to the cases of completed real estate project, an empirical test on investment option model and two important propositions relating to real option theory have also been carried out using empirical analysis method.