Real Estate Development Projects, Real Options Evaluation Method And Its Application

It is very interesting for success or failure in development of real estate how to evaluate the valuation of real estate development program rationally. Because of the specialty of real estate, it is hard to value the program of real estate. The disadvantages of the traditional evaluation method in real estate is being criticized for more and more, however, the development of real option theory provide safeguard of reasonable evaluating real estate development .So it is necessary to construct a reasonable method of appraising real estate development item value.Firstly, the paper is starting under the condition that the traditional evaluation method can not deal with irreversible character , uncertainty and flexibility in investment. We bring forward the view that real option method is a good way to evaluate them. Secondly, the theory about real option is analyzed . We analyze the origin of the valuation of real option, discuss that the theory of real option regulate the traditional evaluation method, get the regulation of real option appraisal and analyze the step of real option method in valuating the real estate development program. Thirdly in this paper the different kinds of uncertainty are classified in real estate. And we analyzed the characteristic of real options during the development of real estate. Then we construct the evaluation method of grow option in real estate. Finally, a example is used to cite the method. We get the result that the real option method is better that the traditional evaluation method in appraising real estate development program.