The Application Of Real Option In Real Estate Investment Decision & Management

The Real estate investment decision is the crux in the whole process of real estate development, the rationality and scientificalness of that will influence directly the development of the investment project. Especially, with the competition among real estate companies becoming very fierce, the decision-maker gives more and more attention on the analysis and research of the methods of real estate investment decision-making. Then it becomes urgent for the decision-maker how to evaluate real estate investment decisions with a scientific and efficient method. The traditional methods, such as Discounted Cash Flow (DCF), to make real estate investment decisions have many limitations, the most important of which neglects something of value when making real estate investment decisions under uncertainty and dynamic choice of timing. Therefore, it is more difficult to make the decision scientifically and reasonably with them. Under this idea, this paper introduces the real option theory into the real estate investment decisions, as a more reasonable approach, which breaks through the limitations of the traditional investment decision methods, and solves difficult problem of decision-making impersonally in the investment environment that includes a great deal of uncertain elements. Firstly, the paper analyzes the real option characteristics, types and the influencing factors of real option value when real estate investment decisions are made under uncertainty, and then attempts to propose an analytical framework of real estate investment evaluation based on the real option theory. After that, considering the real option characteristic of real estate investment, the real option evaluation model of real estate investment decisions is established used the Black-Scholes real potion theory, and the actual application process of real option method in real estate investment is developed. Finally, used the real option method of real estate investment to study a case of real estate development, and then some important investment suggestions are put forward.To analyze the case of real estate development and investment, it is proved that the real option method is more available and maneuverable than the traditional method of real estate investment decision. As a useful attempt to evaluate real estate investment, it is significant to apply the real option theory to study the development and investment of real estate in China.