Concession period determination for PPP retirement village
Abstract
Demand for the construction of retirement villages is increasing with the worldwide growth in ageing populations. However, the development of retirement villages can be impeded by many factors, such as limited available land and high investment costs. Public–private partnership (PPP) as an alternative financing mechanism has been widely applied in the construction of public infrastructure projects and may provide new funding sources for building retirement villages. By applying PPP to the construction of retirement villages, the independent living requirements of seniors can be met and the financial difficulty of the construction of retirement villages can be resolved. Similar to other PPP projects, when retirement villages are constructed under a PPP process, the concession period is a key decision variable in relation to the success of the project. The concession period is stated in the project contract between the government and private investors, and stipulates the date when the project ownership and operation are transferred from the private investor back to the government. The government should take detailed information into consideration at the initial project stage when determining the concession period. This paper proposes PPP as a new procurement method to be applied to the construction of rental retirement villages and develops a concession period determination process for PPP retirement village projects with consideration of real options, focusing on the option to defer. An empirical example with alternative scales, which is developed from an existing retirement village in Geelong, Australia, is used to numerically verify the process and the impacts of key variables on the concession period. The determination process provides an alternative tool for governments to design the concession period before the tendering stage and will benefit the development of industries associated with services for the ageing population. This process can also be applied to the construction of other financially non-viable PPP projects such as social housing.
Keyword : concession period, option to defer, public–private partnership, real option, retirement village
How to Cite
Liu, S., Jin, H., Xie, B., Liu, C., & Mills, A. (2018). Concession period determination for PPP retirement village. International Journal of Strategic Property Management, 22(5), 424-435. https://doi.org/10.3846/ijspm.2018.5476
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Almassi, A., McCabe, B., & Thompson, M. (2013). Real options–based approach for valuation of government guarantees in public–private partnerships. Journal of Infrastructure Systems, 19(2), 196-204. https://doi.org/10.1061/(ASCE)IS.1943-555X.0000117
Ashuri, B., Kashani, H., Molenaar, K., Lee, S., & Lu, J. (2011). Risk-neutral pricing approach for evaluating BOT highway projects with government minimum revenue guarantee options. Journal of Construction Engineering and Management, 138(4), 545-557. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000447
Bao, H., Peng, Y., Ablanedo-Rosas, J. H., & Gao, H. (2015). An alternative incomplete information bargaining model for identifying the reasonable concession period of a BOT project. International Journal of Project Management, 33(5), 1151-1159. https://doi.org/10.1016/j.ijproman.2014.12.004
Brasor, P., & Tsubuku, M. (2014, 6 January). Retirement homes come of age in booming market. Retrieved from https://bit.ly/2xmP75s
Carbonara, N., Costantino, N., & Pellegrino, R. (2014). Concession period for PPPs: a win–win model for a fair risk sharing. International Journal of Project Management, 32(7), 1223-1232. https://doi.org/10.1016/j.ijproman.2014.01.007
COTA Australia. (2017, 22 June). AAA Housing for older Australians – making it affordable, accessible and appropriate- summary remarks. 2017 National Policy Forum. Retrieved from http://bit.ly/2IBQT40
Cruz, C. O., & Marques, R. C. (2013). Flexible contracts to cope with uncertainty in public–private partnerships. International Journal of Project Management, 31(3), 473-483. https://doi.org/10.1016/j.ijproman.2012.09.006
Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton, New Jersey: Princeton University Press.
Doan, P., & Menyah, K. (2012). Impact of irreversibility and uncertainty on the timing of infrastructure projects. Journal of Construction Engineering and Management, 139(3), 331-338. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000615
Gardner, I. L., Browning, C., & Kendig, H. (2005). Accommodation options in later life: retirement village or community living? Australasian Journal on Ageing, 24(4), 188-195. https://doi.org/10.1111/j.1741-6612.2005.00121.x
Hanaoka, S., & Palapus, H. P. (2012). Reasonable concession period for build-operate-transfer road projects in the Philippines. International Journal of Project Management, 30(8), 938-949. https://doi.org/10.1016/jiijproman.2012.02.001
Huang, D. W., & Lv, Z. Y. (2016). Concession period of PPP projects based on security option. Journal of Economics of Water Resources, 34(6), 26-29.
Huang, Y.-L., & Pi, C.-C. (2013). Real-option valuation of build-operate-transfer infrastructure projects under performance bonding. Journal of Construction Engineering and Management, 140(5), 04 013 068. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000821
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Jones, A., Howe, A., Tilse, C., Bartlett, H., & Stimson, B. (2010). Service integrated housing for Australians in later life (AHURI Final Report No. 141). Retrieved from https://bit.ly/2K0NAb5
Khanzadi, M., Nasirzadeh, F., & Alipour, M. (2012). Integrating system dynamics and fuzzy logic modeling to determine concession period in BOT projects. Automation in Construction, 22, 368-376. https://doi.org/10.1016/j.autcon.2011.09.015
Li, S., & Cai, H. (2017). Government incentive impacts on private investment behaviors under demand uncertainty. Transportation Research Part E: Logistics and Transportation Review, 101, 115-129. https://doi.org/10.1016/j.tre.2017.03.007
Liu, J., & Cheah, C. Y. (2009). Real option application in PPP/PFI project negotiation. Construction Management and Economics, 27(4), 331-342. https://doi.org/10.1080/01446190902807071
Liu, S., Ma, L., & Liu, C. (2016). Understanding senior community residents for better construction of retirement villages. Proceedings of the Australasian Universities Building Education Association Annual Conference 2016: Radical Innovation in the Built Environment (pp. 525-534). Carins, Queensland, Australia.
Lv, J., Liu, W., Zou, Q., & Gan, L. (2016). Cooperative game model on concession period in SBOT project under uncertainty. Journal of Industrial Engineering/Engineering Management, 30(3), 209-215.
Lv, J., Ye, G., Liu, W., Shen, L., & Wang, H. (2014). Alternative model for determining the optimal concession period in managing BOT transportation projects. Journal of Management in Engineering, 31(4), 04 014 066. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000291
Mirzadeh, I., & Birgisson, B. (2015). Evaluation of highway projects under government support mechanisms based on an option-pricing framework. Journal of Construction Engineering and Management, 142(4), 04 015 094. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001079
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
National Commission of Audit. (2014). Towards Responsible Government: The Report of the National Commission of Audit Phase One. Retrieved from https://bit.ly/2M8Q03O
Ng, S. T., Xie, J., Cheung, Y. K., & Jefferies, M. (2007). A simulation model for optimizing the concession period of public–private partnerships schemes. International Journal of Project Management, 25(8), 791-798. https://doi.org/10.1016/j.ijproman.2007.05.004
Osei-Kyei, R., Chan, A. P., Javed, A. A., & Ameyaw, E. E. (2017). Critical success criteria for public-private partnership projects: international experts’ opinion. International Journal of Strategic Property Management, 21(1), 87-100. https://doi.org/10.3846/1648715X.2016.1246388
Owen, S. (2015, 11 November). The future of retirement living. Retrieved from http://bit.ly/2zOj3Iq
Retirement Village Association. (2011). Caring for Older Australians: Response to the Productivity Commission Draft Report (Submission DR900). Retrieved from https://bit.ly/2hZPhVN
Rocha Armada, M. J., Pereira, P. J., & Rodrigues, A. (2012). Optimal subsidies and guarantees in public–private partnerships. The European Journal of Finance, 18(5), 469-495. https://doi.org/10.1080/1351847X.2011.639789
Shen, L., Bao, H., Wu, Y., & Lu, W. (2007). Using bargaining-game theory for negotiating concession period for BOT-type contract. Journal of Construction Engineering and Management, 133(5), 385-392. https://doi.org/10.1061/(ASCE)0733-9364(2007)133:5(385)
Shen, L., Li, H., & Li, Q. (2002). Alternative concession model for build operate transfer contract projects. Journal of Construction Engineering and Management, 128(4), 326-330. https://doi.org/10.1061/(ASCE)0733-9364(2002)128:4(326)
Shen, L., & Wu, Y. (2005). Risk concession model for build/operate/transfer contract projects. Journal of Construction Engineering and Management, 131(2), 211-220. https://doi.org/10.1061/(ASCE)0733-9364(2005)131:2(211)
Song, J., Song, D., & Zhang, D. (2015). Modeling the concession period and subsidy for bot waste-to-energy incineration pro-jects. Journal of Construction Engineering and Management, 141(10), 04 015 033. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001005
Stimson, R. J., & McCrea, R. (2004). A push-pull framework for modelling the relocation of retirees to a retirement village: the Australian experience. Environment and Planning A, 36(8), 1451-1470. https://doi.org/10.1068/a36206
Tang, X., & Feng, L. (2016). Research on the financing model of senior housing based on PPP. Proceedings of the International Conference on Construction and Real Estate Management 2016 (pp. 896-902). Edmonton, Canada.
Tsutsui, T. (2010). The current state and future development of the long-term care insurance system in Japan. Journal of the National Institute of Public Health, 59, 372-379.
Vecchi, V., Hellowell, M., della Croce, R., & Gatti, S. (2017). Government policies to enhance access to credit for infrastructure-based PPPs: an approach to classification and appraisal. Public Money & Management, 37(2), 133-140. https://doi.org/10.1080/09540962.2016.1266173
Wibowo, A., & Kochendoerfer, B. (2011). Selecting BOT/PPP infrastructure projects for government guarantee portfolio under conditions of budget and risk in the Indonesian context. Journal of Construction Engineering and Management, 137(7), 512-522. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000312
Wood, G., Ong, R., & Cigdem, M. (2014). Housing affordability dynamics: new insights from the last decade (AHURI Final Report No. 233). Retrieved from https://bit.ly/2MOt0bx
Wood, G., Ong, R., & Cigdem, M. (2017). Australian demographic trends and implications for housing assistance programs (AHURI Final Report No. 286). Retrieved from https://bit.ly/2K9C3ST
Xia, B., Zuo, J., Skitmore, M., Chen, Q., & Rarasati, A. (2015). Sustainable retirement village for older people: a case study in Brisbane, Australia. International Journal of Strategic Property Management, 19(2), 149-158. https://doi.org/10.3846/1648715X.2015.1029564
Xiong, W., & Zhang, X. (2016). The real option value of renegotiation in public–private partnerships. Journal of Construction Engineering and Management, 142(8). https://doi.org/10.1061/(ASCE)CO.1943-7862.0001130
Xu, J., & Moon, S. (2014). Stochastic revenue and cost model for determining a BOT concession period under multiple project constraints. Journal of Management in Engineering, 30(3). https://doi.org/10.1061/(ASCE)ME.1943-5479.0000182
Xu, Y., Peng, Y., Qian, Q. K., & Chan, A. P. (2015). An alternative model to determine the financing structure of PPP-based young graduate apartments in China: a case study of Hangzhou. Sustainability, 7(5), 5720-5734. https://doi.org/10.3390/su7055720
Yang, L., Zhou, Y., & Tan, L. (2017). The division of roles in operation models for PPP elderly housing projects. Proceedings of the International Conference on Construction and Real Estate Management 2017 (pp. 396-403). Guangzhou, China.
Yu, C. Y., & Lam, K. C. (2013). A decision support system for the determination of concession period length in transportation project under BOT contract. Automation in Construction, 31, 114-127. https://doi.org/10.1016/j.autcon.2012.11.012
Yuen, B., & Soh, E. (2017). Housing for older people in Singapore: an annotated bibliography. Retrieved from https://bit.ly/2JZPkS0
Zhang, X. (2009). Win–win concession period determination methodology. Journal of Construction Engineering and Management, 135(6), 550-558. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000012
Zhao, G., & He, T. (2010). The research on the concession term decision-making model for BOT projects based on real option. Journal of Beijing Institute of Technology (Social Science Edition), 12(5), 27-30.
Alam, Q., Kabir, M. H., & Chaudhri, V. (2014). Managing infrastructure projects in Australia: a shift from a contractual to a collaborative public management strategy. Administration & Society, 46(4), 422-449. https://doi.org/10.1177/0095399712459728
Almassi, A., McCabe, B., & Thompson, M. (2013). Real options–based approach for valuation of government guarantees in public–private partnerships. Journal of Infrastructure Systems, 19(2), 196-204. https://doi.org/10.1061/(ASCE)IS.1943-555X.0000117
Ashuri, B., Kashani, H., Molenaar, K., Lee, S., & Lu, J. (2011). Risk-neutral pricing approach for evaluating BOT highway projects with government minimum revenue guarantee options. Journal of Construction Engineering and Management, 138(4), 545-557. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000447
Bao, H., Peng, Y., Ablanedo-Rosas, J. H., & Gao, H. (2015). An alternative incomplete information bargaining model for identifying the reasonable concession period of a BOT project. International Journal of Project Management, 33(5), 1151-1159. https://doi.org/10.1016/j.ijproman.2014.12.004
Brasor, P., & Tsubuku, M. (2014, 6 January). Retirement homes come of age in booming market. Retrieved from https://bit.ly/2xmP75s
Carbonara, N., Costantino, N., & Pellegrino, R. (2014). Concession period for PPPs: a win–win model for a fair risk sharing. International Journal of Project Management, 32(7), 1223-1232. https://doi.org/10.1016/j.ijproman.2014.01.007
COTA Australia. (2017, 22 June). AAA Housing for older Australians – making it affordable, accessible and appropriate- summary remarks. 2017 National Policy Forum. Retrieved from http://bit.ly/2IBQT40
Cruz, C. O., & Marques, R. C. (2013). Flexible contracts to cope with uncertainty in public–private partnerships. International Journal of Project Management, 31(3), 473-483. https://doi.org/10.1016/j.ijproman.2012.09.006
Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton, New Jersey: Princeton University Press.
Doan, P., & Menyah, K. (2012). Impact of irreversibility and uncertainty on the timing of infrastructure projects. Journal of Construction Engineering and Management, 139(3), 331-338. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000615
Gardner, I. L., Browning, C., & Kendig, H. (2005). Accommodation options in later life: retirement village or community living? Australasian Journal on Ageing, 24(4), 188-195. https://doi.org/10.1111/j.1741-6612.2005.00121.x
Hanaoka, S., & Palapus, H. P. (2012). Reasonable concession period for build-operate-transfer road projects in the Philippines. International Journal of Project Management, 30(8), 938-949. https://doi.org/10.1016/jiijproman.2012.02.001
Huang, D. W., & Lv, Z. Y. (2016). Concession period of PPP projects based on security option. Journal of Economics of Water Resources, 34(6), 26-29.
Huang, Y.-L., & Pi, C.-C. (2013). Real-option valuation of build-operate-transfer infrastructure projects under performance bonding. Journal of Construction Engineering and Management, 140(5), 04 013 068. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000821
IBISWorld. (2017). Coming of age: revenue soars as retiring baby boomers drive industry demand (Industry Report OD5534 Retirement Villages in Australia). Retrieved from www.ibisworld.com.au
Jones, A., Howe, A., Tilse, C., Bartlett, H., & Stimson, B. (2010). Service integrated housing for Australians in later life (AHURI Final Report No. 141). Retrieved from https://bit.ly/2K0NAb5
Khanzadi, M., Nasirzadeh, F., & Alipour, M. (2012). Integrating system dynamics and fuzzy logic modeling to determine concession period in BOT projects. Automation in Construction, 22, 368-376. https://doi.org/10.1016/j.autcon.2011.09.015
Li, S., & Cai, H. (2017). Government incentive impacts on private investment behaviors under demand uncertainty. Transportation Research Part E: Logistics and Transportation Review, 101, 115-129. https://doi.org/10.1016/j.tre.2017.03.007
Liu, J., & Cheah, C. Y. (2009). Real option application in PPP/PFI project negotiation. Construction Management and Economics, 27(4), 331-342. https://doi.org/10.1080/01446190902807071
Liu, S., Ma, L., & Liu, C. (2016). Understanding senior community residents for better construction of retirement villages. Proceedings of the Australasian Universities Building Education Association Annual Conference 2016: Radical Innovation in the Built Environment (pp. 525-534). Carins, Queensland, Australia.
Lv, J., Liu, W., Zou, Q., & Gan, L. (2016). Cooperative game model on concession period in SBOT project under uncertainty. Journal of Industrial Engineering/Engineering Management, 30(3), 209-215.
Lv, J., Ye, G., Liu, W., Shen, L., & Wang, H. (2014). Alternative model for determining the optimal concession period in managing BOT transportation projects. Journal of Management in Engineering, 31(4), 04 014 066. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000291
Mirzadeh, I., & Birgisson, B. (2015). Evaluation of highway projects under government support mechanisms based on an option-pricing framework. Journal of Construction Engineering and Management, 142(4), 04 015 094. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001079
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
National Commission of Audit. (2014). Towards Responsible Government: The Report of the National Commission of Audit Phase One. Retrieved from https://bit.ly/2M8Q03O
Ng, S. T., Xie, J., Cheung, Y. K., & Jefferies, M. (2007). A simulation model for optimizing the concession period of public–private partnerships schemes. International Journal of Project Management, 25(8), 791-798. https://doi.org/10.1016/j.ijproman.2007.05.004
Osei-Kyei, R., Chan, A. P., Javed, A. A., & Ameyaw, E. E. (2017). Critical success criteria for public-private partnership projects: international experts’ opinion. International Journal of Strategic Property Management, 21(1), 87-100. https://doi.org/10.3846/1648715X.2016.1246388
Owen, S. (2015, 11 November). The future of retirement living. Retrieved from http://bit.ly/2zOj3Iq
Retirement Village Association. (2011). Caring for Older Australians: Response to the Productivity Commission Draft Report (Submission DR900). Retrieved from https://bit.ly/2hZPhVN
Rocha Armada, M. J., Pereira, P. J., & Rodrigues, A. (2012). Optimal subsidies and guarantees in public–private partnerships. The European Journal of Finance, 18(5), 469-495. https://doi.org/10.1080/1351847X.2011.639789
Shen, L., Bao, H., Wu, Y., & Lu, W. (2007). Using bargaining-game theory for negotiating concession period for BOT-type contract. Journal of Construction Engineering and Management, 133(5), 385-392. https://doi.org/10.1061/(ASCE)0733-9364(2007)133:5(385)
Shen, L., Li, H., & Li, Q. (2002). Alternative concession model for build operate transfer contract projects. Journal of Construction Engineering and Management, 128(4), 326-330. https://doi.org/10.1061/(ASCE)0733-9364(2002)128:4(326)
Shen, L., & Wu, Y. (2005). Risk concession model for build/operate/transfer contract projects. Journal of Construction Engineering and Management, 131(2), 211-220. https://doi.org/10.1061/(ASCE)0733-9364(2005)131:2(211)
Song, J., Song, D., & Zhang, D. (2015). Modeling the concession period and subsidy for bot waste-to-energy incineration pro-jects. Journal of Construction Engineering and Management, 141(10), 04 015 033. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001005
Stimson, R. J., & McCrea, R. (2004). A push-pull framework for modelling the relocation of retirees to a retirement village: the Australian experience. Environment and Planning A, 36(8), 1451-1470. https://doi.org/10.1068/a36206
Tang, X., & Feng, L. (2016). Research on the financing model of senior housing based on PPP. Proceedings of the International Conference on Construction and Real Estate Management 2016 (pp. 896-902). Edmonton, Canada.
Tsutsui, T. (2010). The current state and future development of the long-term care insurance system in Japan. Journal of the National Institute of Public Health, 59, 372-379.
Vecchi, V., Hellowell, M., della Croce, R., & Gatti, S. (2017). Government policies to enhance access to credit for infrastructure-based PPPs: an approach to classification and appraisal. Public Money & Management, 37(2), 133-140. https://doi.org/10.1080/09540962.2016.1266173
Wibowo, A., & Kochendoerfer, B. (2011). Selecting BOT/PPP infrastructure projects for government guarantee portfolio under conditions of budget and risk in the Indonesian context. Journal of Construction Engineering and Management, 137(7), 512-522. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000312
Wood, G., Ong, R., & Cigdem, M. (2014). Housing affordability dynamics: new insights from the last decade (AHURI Final Report No. 233). Retrieved from https://bit.ly/2MOt0bx
Wood, G., Ong, R., & Cigdem, M. (2017). Australian demographic trends and implications for housing assistance programs (AHURI Final Report No. 286). Retrieved from https://bit.ly/2K9C3ST
Xia, B., Zuo, J., Skitmore, M., Chen, Q., & Rarasati, A. (2015). Sustainable retirement village for older people: a case study in Brisbane, Australia. International Journal of Strategic Property Management, 19(2), 149-158. https://doi.org/10.3846/1648715X.2015.1029564
Xiong, W., & Zhang, X. (2016). The real option value of renegotiation in public–private partnerships. Journal of Construction Engineering and Management, 142(8). https://doi.org/10.1061/(ASCE)CO.1943-7862.0001130
Xu, J., & Moon, S. (2014). Stochastic revenue and cost model for determining a BOT concession period under multiple project constraints. Journal of Management in Engineering, 30(3). https://doi.org/10.1061/(ASCE)ME.1943-5479.0000182
Xu, Y., Peng, Y., Qian, Q. K., & Chan, A. P. (2015). An alternative model to determine the financing structure of PPP-based young graduate apartments in China: a case study of Hangzhou. Sustainability, 7(5), 5720-5734. https://doi.org/10.3390/su7055720
Yang, L., Zhou, Y., & Tan, L. (2017). The division of roles in operation models for PPP elderly housing projects. Proceedings of the International Conference on Construction and Real Estate Management 2017 (pp. 396-403). Guangzhou, China.
Yu, C. Y., & Lam, K. C. (2013). A decision support system for the determination of concession period length in transportation project under BOT contract. Automation in Construction, 31, 114-127. https://doi.org/10.1016/j.autcon.2012.11.012
Yuen, B., & Soh, E. (2017). Housing for older people in Singapore: an annotated bibliography. Retrieved from https://bit.ly/2JZPkS0
Zhang, X. (2009). Win–win concession period determination methodology. Journal of Construction Engineering and Management, 135(6), 550-558. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000012
Zhao, G., & He, T. (2010). The research on the concession term decision-making model for BOT projects based on real option. Journal of Beijing Institute of Technology (Social Science Edition), 12(5), 27-30.