In Thailand, most of real estate investors depends their decision on the overall economic situation resulting to property development industry downsizing since 2005. This phenomenon directly affects the consumer’s confidence, and has direct coloration with economic situation. While housing demand was reducing gradually, housing supply was increasing at the same time. And some investors therefore could not gain revenues base on their expectation.
For real estate project, it is impossible to make investment decision which aim is to achieve the business goal without understanding the whole process of investment and the factors which influence every state of decision making process.
Ms. Rahongsree Prayongrut made a case study to investigate the investment decision making process of real estate project and to identify the key factors which influence every stage. In order to accomplish these primary objectives, she outlined three sub-objectives which are to (1) develop model of investment decision making process of real estate project and identifying factors which influence investment decision in each stage; (2) investigate the practice of developer’s investment decision making base upon developed model, through finding out significant factors affecting decision making process, and their behaviors in facing fluctuation and alter of factors in investment decision making process for real estate project; and (3) propose recommendations to developers in order to improve practical management decisions by using the model and significant factors.
Her study revealed that the residential property project investment decision is divided into two directions; a) investment decision driven by supply, and b) investment decision driven by demand. Each direction has four main decisions such as location, target group, design and finance. In the investment decision driven by supply, it started with land acquisition while investment decision driven by demand is started with identify target group. Some processes and key influence decision are different between two directions.
Her study also revealed that there are many internal and external factors which induce developer to follow each direction. These are:
1. The reasons for choosing any of investment direction
Generally investment decision making process driven by supply is long process of development and more in land bank strategy. On the other hand, investment decision making process driven by demand is raced against time and several competitors because of attractive existing demand. The developer can choose any investment direction, and the decision will depend on internal factors (investment strategy and financial health) and external factors (land price, economic situation, and property market trend). Land price and property market trend is one of the most important considerations of decision making process.
2. Residential investment decision driven by supply: land acquisition and target group selection.
For the acquisition of land through legal process, the developers should consider several factors such as land price, right of land, accessibility, transportation, the distant form CBD, amenity, facility, infrastructure, government development plan obligation, expropriate, physical feature of land, elevation, physical constrain, and previous building.
For identifying the target group, there are several factors which developers should consider such as housing demand, customer’ confidence, housing stock, demographic, housing supply, housing loan, housing affordability, average income, and government financial and housing policy, competitor’s price, quality and brand royalty for target group consideration.
3. Residential investment decision driven by demand: target group selection, land acquisition, and financial decision. To identify and analyze the target group, the developers are advised to do the following steps:
a) Evaluate the real estate market trend, housing demand and supply to find the existing demand in terms of number, income, characteristic, and affordability
b) Analyze whether the government policy in terms of housing development and finance is supportive or not.
c) Analyze the competitors in terms of their target group and location. The market segmentation is evaluated.
For site selection, the developers must identify where the existing demand and project’s competitors are. They need to evaluate the site in terms of transportation, accessibility, facility and amenity, physical feature and land price, and for the legal requirements, analysis of right of land and other legal title of land.
4. Design: The similar of two investment directions, the investment decision driven by supply and demand. Below are some points for developers to follow:
a) Start with developing detail financial plan and feasibility analysis in terms of cash flow statement, budget, unit price, discount rate, mark-up, break event point, D/E, and capital arrangement. Sensitivity analysis is achieved afterward.
b) Set up the construction cost following financial plan from financial activities,
c) Analyze customer in terms of customers’ needs, lift style and family size and then they identify selling point.
d) Point out the legal and environmental requirement and constrain if any, then carried out the project design and product design subsequently, and
e) Finally, conduct master plan, payment condition, and contract condition with other stakeholders and negotiation.
5. The difference between financial methods. Generally, investment decision making process driven by supply uses long term loan or developer’s equity for land acquisition, contrary to the process driven by demand which uses short term finance for projects.
Her thesis abstract is copied and posted.
ABSTRACT
Currently, economic and financial are varying over the time among increase in business competitors. Therefore, it encourages the higher investment risks especially in real estate industry because of its nature. The study focused on residential investment which is the major part of real estate industry. The study aims to investigate investment decision making process of real estate project and identifying factors which influence investment decision and recommend the effective operational method for making residential investment decisions.
The study uses case study as a research design. The processes begin with factor identification which consists of preliminary factor and verification of the factors. It is the continued with the data collection using the abovementioned factors to design the case study question. Data analysis is conducted toward the evidences using explanation building method in which all the important evidences are revealed and explained.
The result from project case studies indicated, that residential property project investment decision is divided into two directions. There are investment decisions driven by supply and demand. Any of investment direction, there are four main decisions which are location, target group, design and finance. The framework shows the how to choose the investment direction and how each investment direction are performed.
Construction Equipment: 2002 Hitachi ZX330 Excavator and 2003 Hitachi ZX330 Excavator
