Research On The Method Of Real Options In Real Estate Investment Projects

Investment in real estate has characters of long-time construction, high investment and uncertainty of irreversibility. Traditional methods such as net present value or method of discounted cash flow are commonly used to assess the value of the investment. However, the method is not considered a long time investment, price volatility and other factors of uncertainty. These uncertainties create investment opportunities for real estate investment projects worth. Thus often underestimate the value of real estate investments. Real options theory is applied to real estate investments, means to break down the traditional way and use option pricing theory to evaluate the investment decision under the circumstances. More importantly, investors must establish a new concept of the real options in real estate investment , then to look at the kind of strategic investment decisions., know how to find the real option in the actual economic activity and use the option correctly.This paper discusses the value of project in uncertainties investment opportunity, considers the real option pricing theory and characteristics of real estate investment options, analysis the impact of construction period on project valuation. Moreover, through valuation of real option pricing model and the practical application of the specific aspects, this paper provided an assessment model of real option valuation in real estate field. This real options theory is applied innovatively to the practice of real estate investment and stressed the role of scientific decision-making. The real estate investment objective is to provide a new method of decision-making, hope to provide a possible reference to the value of real estate development enterprises.