An examination of Thai practitioners perceptions of risk assessment techniques

in real estate development projects

Authors: Sukulpat Khumpaisalm, Andrew Ross, Raymond Abdulai Raymond Abdulai
Source: Internet via EBSCOHOST (USC Web)

Objective of the study:

The aim of this article is to examine the possible causes of risks in the real estate
sector, as well as the perceptions of real estate practitioners towards existing risk
criteria and risk assessment techniques in order to develop an appropriate risk
assessment technique.
Research Method
The quantitative, qualitative and mixed methodologies approaches were considered
with regard to their appropriateness and the mixed-methodologies approach was fi nally
adopted. Interviews with two real estate developers were also conducted.
Instruments Questionnaires
Fifty sets of small-scale questionnaires were distributed to selected participants in
Thailand. The response rate of the questionnaires distributed was 78 per cent (39 out
of 50).
Statistical tools : Independent t -test, ANOVA

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Results, findings and recommendations

Data shows that Thai practitioners are mostly concerned with the consequences of risks
caused by economic and political factors; the percentages are 66.7 and 53.9 per cent,
respectively. The effects of risks from social factors are considered to be the lowest
(23.0 per cent). In terms of the likelihood of the occurrence risks from STEEP factors, it
shows that economic factors were ranked the highest (59 per cent) compared to other
factors, while environmental factors were ranked the lowest (25.7 per cent).. In order to
verify these results and to understand the relationship among the STEEP factors, the
Pearson test was used to establish the correlation between the position of respondents
and perceptions of STEEP factors. This results from the tests show that there are eight
factors that are strongly correlated ( P < 0.05) economic and political factors while
the remaining factors do not show any signifi cant correlation.

Thai real estate practitioners need practical risk assessment techniques to help them
assess the consequences of risks in this highly competitive sector. As found in this
study, most Thai practitioners (80 per cent) use non-systematic assessment methods,
particularly the panel discussion technique, which does not provide precise details on
how to deal with risks ( Chen and Khumpaisal, 2008 ). There was a low response rate to
the question on practitioners satisfaction with risk assessment techniques . This
implies that the respondents are neither satisfi ed nor dissatisfi ed with the current risk
assessment techniques. To verify these results, the independent t -test was conducted
to test the equality of the mean of this set of respondents. Results derived from the t

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-Test show that the signifi cance level is 1.0, meaning that there is no signifi cant
difference between means

Insights, reflections
Risk is always associated in real estate development. Either the risk is systematic or
unsystematic. The former which is external and nature while the latter is specific to the
project. We already have rich body of knowledge on this topic. Based on experiences
and literatures, the real estate developers usually uses STEEP or social, technological,
environmental, economic and political during the project feasibility study. Considering
the necessity to have a risk assessment model, the industry currently has Risk
Assessment Matrix that describes the different risk associated with the development in
matrix form. Since the data are based on personal opinion and not reliable most Thai
real estate developers still relied on non-systematic assessment methods. There is a
need for an analytical network process (ANP) as an alternative risk assessment.
With this study it is a challenge to researchers in the Philippines to come out a research
on various risk in Philippine real estate development. It will help our developers in
addressing the risk that they willl encounter in various stages of project development.

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Identifying the Extent of the Urban Fringe and Its Impact

on Agricultural Land Values
Authors: Benot A. Delbecq, Todd H. Kuethe, and Allison M. Borchers

Objective of the study:

The study aims to presents an empirical model of the impacts of agricultural and urban
returns on farmland value. The model allows the marginal impacts of parcel
characteristics to vary nonlinearly over space with an endogenous smooth transition
between urban fringe and rural areas.

Research Method
Develop a model
Number of examined parcels
The estimation examines 10,317 parcel-level farmland transactions across the state of
Illinois over the period January 2001December 2009.
Statistical tools : t -test, F-test

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Results, findings and recommendations

The estimated results reported standard errors are used to test whether each estimated
parameter is statistically different from zero using a t-test. For the time being we refer to
the regime within a short distance from the largest urban centers as the close regime
and the other regime as the far regime. The data reports the coefficient estimates (and
standard errors) for the close regime, and the far regime estimates are reported in
the second column. The coefficient estimates reflect the change in per acre farmland
prices for a oneunit change in the characteristic value, all else equal. It reported that the
Wald test F-values for the difference between the close and far regimes for each
variable. When the test is statistically significant, it implies that the marginal value in per
acre farmland price associated with the corresponding parcel characteristic is different
between the two regimes. The Wald test statistics are statistically significant for all but
two of the parcel characteristics: the presence of buildings and structures and the
distance to the nearest urban center of at least 25,000 residents. More importantly, it
observe that the estimated parameter associated with the percent change in population
from 2000 to 2010 is positive and significant in the close regime but cannot be
distinguished from zero in the far regime. Further, the two parameters are statistically
different from each other. Population growth proxies the value of expected future rent
increases associated with urban growth, and we use it as a measure of urban influence.
The paper conclude that the urban influence of the three major metropolitan areas
included in the analysis diminishes with distance from their outer edge until it eventually
vanishes. The shape and position of the transition between the two regimes is modeled
by the two regime-switching coefficients reported the smoothness parameter ( = 5.71)
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and the inflection point (c = 25.25). Both coefficients are statistically significant and
imply the transition depicted . The x-axis is the distance to the edge of the nearest major
urban area (Chicago, St. Louis, or Indianapolis) in kilometers. The y-axis is the value of
the logistic transition function. The estimated logistic function is well identified despite
not having a clearly defined plateau in the close regime. We observe a gradual
transition extending over approximately 50 km, leading to an extended plateau in the
far regime. The distance at which farmland values stop being influenced by the
potential conversion premium defines the extent of the urban fringe.

Insights, reflections
The presence of large urban centers has the potential to greatly alter the market value
of agricultural lands. Farmland values at the urban fringe are determined by both the
ability to produce agricultural goods and services and the potential conversion to highvalue urban land use activities, such as commercial or residential use. The model uses
allows the price impact of agricultural and urban returns to differ between the urban
fringe and rural areas, and the model estimates a smooth and continuous transition
between the two regimes. In addition, the transition from urban fringe to rural areas and
the extent of the urban fringe are endogenously identi fied by observed market data,
and the model allows for spatially correlated omitted or unobservable variables.

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Private equity investment and real estate development: Evidence from residential
projects in India
Authors: Rajan Annamalai, Thillai; Bansal, Bharat; Gemson, Josephine.
Source: Journal of Financial Management of Property and Construction

Objective of the study:

The purpose of the paper is to understand the trends and contribution of private equity
(PE) investors in real estate development in India because the real estate sector in India
had witnessed significant investments from Private Equity firms in recent years.
Design/methodology/approach
The study focused on residential segment of real estate development, as it is the largest
among all the segments. Two types of analyses have been done in this paper: first was
to compare residential projects with Private Equity (PE) investment with those that did
not have any Private Equity investment.
Statiscal Methods Pearson Chi-square
Samples - 347 investment deals, 217 pertained to domestic investors and 130 pertained
to foreign investors.

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Results, findings
An examination of developer level variables such as years of experience and number of
projects developed indicated that there was no significant difference between the two
samples. However, in terms of square foot developed, the difference between the two
samples was significant at the 10 per cent level. This indicated that PE firms preferred
to invest with developers who undertook larger projects.
Frequency count showed that for PE-funded projects, 79 per cent of the projects were
in metro cities. The corresponding percentage for projects with no PE funding was 61
per cent. Chi-square analysis of category distribution resulted in a Pearson Chisquare statistic of 16.8696, which was significant at the 0.1 per cent level. These results
indicated that there was a strong preference among PE investors to invest in metro
cities.
PE investment can be classified into two categories based on the investment mode. If
the investment was in the special purpose vehicle created for the project, then it was
classified as a Project Mode investment. If the investment was in a corporate structure
or holding structure, then it was classified as an Entity Mode investment. Frequency
count indicated that 80 per cent of the deals made by domestic investors were Project
Mode investments, whereas the corresponding figure for foreign investors was 63 per
cent. Chi-square analysis of category distribution resulted in a Pearson Chisquare statistic of 12.2976, which was significant at the 0.1 per cent level. These results
indicated that there was a strong preference among domestic PE investors to make
Project Mode investments as compared to foreign PE investors.
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Projects with Private Equity investment were larger, as compared to projects that do not
have. The results of this paper also showed that Private Equity firms preferred to invest
with developers who had significant experience in undertaking larger-sized projects.
Private Equity investments significantly happened in projects that were located in metro
cities. While PE firms as a whole preferred to invest in project mode, domestic investors
were more inclined to invest in a project structure as compared to foreign Private Equity
firms. Though foreign Private Equity firms invested more amounts per deal on average,
there was a negative relationship between foreign PE firms and the extent of their
shareholding in the investment.

Insights, reflections
PE firms have predominantly invested in urban housing projects. They have capitalized
on the economic boom in India and have concentrated on investing in luxury/mid-luxury
segments primarily located in metro cities. Domestic investors because of their
familiarity with the local conditions are able to invest in lower valuations as compared to
foreign PE investors. It is interesting to note that in this research, domestic investors
have the dominance in the market, both in terms of deals and amount invested. In most
other sectors in India, foreign PE firms have invested more than domestic PE firms.
However, given the reservations in having foreign ownership in Indian real estate,
domestic PE firms have played an important role in the growth of the sector.

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