Real Options Analysis in Residential Property Development Decision-Making in Australia: Perspective of Executives

Mintah, K 2018, 'Real Options Analysis in Residential Property Development Decision-Making in Australia: Perspective of Executives', International Real Estate Review, vol. 21, no. 4, pp. 473-520.


Document type: Journal Article
Collection: Journal Articles

Title Real Options Analysis in Residential Property Development Decision-Making in Australia: Perspective of Executives
Author(s) Mintah, K
Year 2018
Journal name International Real Estate Review
Volume number 21
Issue number 4
Start page 473
End page 520
Total pages 48
Publisher Global Social Science Institute
Abstract Studies have demonstrated the potential of real options analysis (ROA) in property development decision-making. However, practitioners have yet to accept, adopt and integrate ROA in property development decision-making in Australia. This paper therefore investigates how Australian residential property developers manage uncertainties and risks, examines flexibility as a risk management tool, and evaluates the receptiveness and acceptance of ROA for decision making. Data are collected through face-to-face semi-structured interviews with twelve participants, and analysed by using thematic analysis. The results indicate that a discount rate is insufficient for managing uncertainties and risks; rather, contingency is used. Receptiveness and acceptance of the RO theory are mixed due to lack of unanimity among responses. Some participants are positive about flexibility, while others are dismissive. Beyond quantitative ROA models, the findings suggest that practitioners are receptive to ROA, but concerns remain over adoption. Flexibility cases executed by some participants in practice indicate that practitioners are subconsciously using ROA. Therefore, it is possible that acceptance and adoption could be achieved in the future. Evidence of the use of contingency as a risk management tool challenges the long-held notions of risk-return relationships in property development and investment. This is initial evidence of qualitative research on ROA in practice within Australian property developments.
Subject Building Construction Management and Project Planning
Keyword(s) Real Options Analysis
Flexibility
Property Development
Receptiveness and Acceptance
Copyright notice Copyright © 2018 International Real Estate Review
ISSN 2154-8919
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