Management of Uncertainty in Real Estate Development Appraisals: A Literature Review

Abstract

This paper provides an in-depth examination of various concepts related to the forms and sources of uncertainty, as well as the management of uncertainty in real estate development (RED). The study also examines factors influencing the adoption of Real Option Analysis (ROA) in RED given the need to improve the knowledge of stakeholders in RED appraisal, and to ensure best practices. Based on desktop analysis of past authors' perspectives, orientations and submissions regarding the management of uncertainty in RED appraisal, the findings reveal that while there are varying forms and sources of uncertainty in RED appraisals, there are also diverse methods used to manage the uncertainty of it. It is, however, noted that the methods employed are dependent on RED appraisers and other institutional factors. The consensus from previous studies favours ROA in managing uncertainty in RED. This paper adds to the debate for the need to embrace ROA in managing the effects of uncertainty in RED appraisal.

Problem of Investment Analysis Occasioned by the Uncertainty of Factor Elements in Imo State, Nigeria

“…Globally, investment analyses are used in handling uncertainty and instability in investment and making a decision concerning their investment; however, this instability and uncertainty present conditions that use analysis challenges. The conventional assessment methods have inadequately emphasised implications of connections between uncertainties, irreversibility and choice of timing in decisions regarding investment [3]. Considering these probabilistic assessment methods, [36] supposed that whereas sensitivity assessment formed an essential condition in processes of risk assessment, it is not considered a risk assessment method.…”

“…While investment in estate and properties is fixed in space and time and also involves the utilisation of substantial outlay of funds or capital, its capacity to give investors the anticipated and expected outcome is dependent on the price of money or fund, which uncertainty affects the supposed expectation [3]. Property development could be considered an entrepreneurial activity that involves certain uncertainties and risks.…”

“…[9] in Poland presents a method for research concerning valuation instability in the advanced markets to encourage researchers in Poland to involve in global discussions and deceptively recognised in assessment practice since flux is integral to the valuation process. Nigerian researchers such as Aluko et al ( 2004) worked on issues of uncertainty and instability in valuation processes and how estate investor valuers could resolve such problems in their valuation records, while others such as [3] researched on means to managing instability, [10] worked on incorrectness and [11] worked on demand for correct and suitable data for valuation. Their results showed a substantial level of instability which needed to be ideal for making a decision concerning property investment, unavailability of competent valuation agents, and poor compliance with valuation guidelines in methods and quality of valuation reports.…”

Flexibility decision pathways in the management of uncertainty in property development: experience from an emerging market

“…Hence, the anticipation and management of risk and uncertainty pose serious concerns to both the investors and advisors. Furthermore, the economic and physical environment within which the development situates is often subject to an array of influences that introduce uncertainty to the core of all development activities (Ayodele and Olaleye, 2018a). These uncertainties range from fluctuating demand and sale prices, the cost of land, pre-lease rate and government risks, changing regulations on rent, taxes and project licences among others and these could impact significantly on the investors' investment objectives (Yeo, 2012;Akakandelwa, 2014;Saunders et al, 2015).…”