A dynamic simulation model for economic feasibility of apartment development projects
Abstract
Many factors influence the success of apartment development projects, but it is difficult to quantitatively measure them. In terms of risk control, the five most direct influence factors are sales ratio, unit sale price, financial cost, land cost, and construction cost. These factors will vary during the project, from planning to land purchase to design to sale to construction, and the levels of these factors will also affect project performance. Therefore, it is necessary to dynamically forecast, control and monitor, and manage these factors in order to successfully implement apartment development projects. This study develops a dynamic simulation model to analyze the economic feasibility of apartment development projects. It draws a causal loop diagram of the aforementioned influence factors, develops a simulation model using system dynamics, and verifies the model with a case study of a 1,794-unit apartment development project. Using this simulation model, it is possible to quickly and easily simulate the economic effects of the risk factors that change throughout the project, analyze its economic feasibility, and develop a plan to reduce economic losses, if necessary. The simulation model can also identify the optimal conditions for project feasibility and develop a risk-control model for apartment development projects.
Keyword : apartment, development projects, economic feasibility, risk factors, system dynamics, simulation model
How to Cite
Lee, K., Son, S., Kim, D., & Kim, S. (2019). A dynamic simulation model for economic feasibility of apartment development projects. International Journal of Strategic Property Management, 23(5), 305-316. https://doi.org/10.3846/ijspm.2019.9822
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Bae, B. Y., Kim, K. R., Shin, D. w., & Cha, H. S. (2017). Improvement of calculating method of the officially assessed individual house price of aged apartment remodelling reflecting feasibility analysis. Korea Journal of Construction Engineering and Management, 18(6), 89-97.
Caldera, A., & Johansson, Å. (2013). The price responsiveness of housing supply in OECD countries. Journal of Housing Economics, 22(3), 231-249. https://doi.org/10.1016/j.jhe.2013.05.002
Choi, N. H. (2002). Spatial analysis of the location of new public office building for evaluating the locational feasibility. Chungbuk Research Institute, 13(1), 103-118.
Choi, M., Park, M., Lee, H. S., & Hwang, S. (2017). Dynamic modeling for apartment brand management in the housing market. International Journal of Strategic Property Management, 21(4), 357-370. https://doi.org/10.3846/1648715X.2017.1315347
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Go, S. S., Hong, J. H., Song, H., & Park, H. K. (2005). A study on the trend of apartment brand and the residents’ preference. Architectural Institute of Korea, 25(1), 19-22.
Huh, Y. K., Hwang, B. G., & Lee, J. S. (2012). Feasibility analysis model for developer-proposed housing projects in the republic of Korea. Journal of Civil Engineering and Management, 18(3), 345-355. https://doi.org/10.3846/13923730.2012.698911
Han, S. P., Jang, H. M., Lee, Y. S., & Kim, J. J. (2007). Model for dynamics cost-benefit analysis with system dynamics. Journal of the Architectural Institute of Korea, 23(1), 163-171.
Isaac, S., & Navon, R. (2009). Modeling building projects as a basis for change control. Automation in Construction, 18(5), 656-664. https://doi.org/10.1016/j.autcon.2009.01.001
Jeong, K. H. (2001). Building a process model for feasibility analysis in an apartment housing development (Master Degree Dissertation). Kyung Hee University.
Koo, S. M., & Jung, M. W. (2007). A basic study on the current state and problems of feasibility study-focused on the evaluation criteria of the existing relative researches. Architectural Institute of Korea, 23(9), 79-88.
Kim, G. H. (2006). A study on the sensitivity analysis of the financial analysis item in apartment project. Korean Journal of Construction Engineering and Management, 7(1), 100-109.
Lee, Y. H., Lee, S. H., & Kim, J. J. (2016). Development of the housing business model to minimize the fluctuation risk of the housing market. Journal of the Korea Academia-Industrial Cooperation Society, 17(10), 635-646. https://doi.org/10.5762/KAIS.2016.17.10.635
Li, Y., & Liao, X. (2007). Decision support for risk analysis on dynamic alliance. Decision Support Systems, 42(4), 2043-2059. https://doi.org/10.1016/j.dss.2004.11.008
Michael, B., Vicky, S., & Michael, S. (2002). Residential real estate prices: a room with a view. Journal of Real Estate Research, 23(1-2), 129-138.
Mills, A. (2001). A systematic approach to risk management for construction. Structural Survey, 19(5), 245-252. https://doi.org/10.1108/02630800110412615
Nasirzadeh, F., Afshar, A., Khanzadi, M., & Howick, S. (2008). Integrating system dynamics and fuzzy logic modelling for construction risk management. Construction Management and Economics, 26(11), 1197-1212. https://doi.org/10.1080/01446190802459924
Park, J. Y. (2018). A system development for risk management of apartment building projects using system dynamics (PhD thesis). Kyunggido: Kyunghee University.
Park, J. B., Kwon, K. B., Cho, Y., & Paek, J. H. (2008). Feasibility analysis model study of realestate development-focused on construction project development of apartment and stores. Journal of the Architectural Institute of Korea, 24(3), 179-186.
Park, M., Chu, Y., Lee, H. S., & Kim, W. (2009). Evaluation methods for construction projects. Journal of Civil Engineering and Management, 15(4), 349-359. https://doi.org/10.3846/1392-3730.2009.15.349-359
Park, H. S., Sun, S. L., & Kim, J. J. (2006). A study of the influential factors on customer-based apartment brand equity. Journal of the Architectural Institute of Korea, 22(7), 83-90.
Rachmawati, F., Soemitro, R. A. A., Adi, T. J. W., & Susilawati, C. (2018). Critical success factor for partnership in low-cost apartments project: Indonesia perspective. Pacific Rim Property Research Journal, 24(2), 149-160. https://doi.org/10.1080/14445921.2018.1461769
Schniederjans, M. J., Hoffman, J. J., & Sirmans, G. S. (1995). Using goal programming and the analytic hierarchy process in house selection. Journal of Real Estate Finance and Economics, 11(2), 167-176. https://doi.org/10.1007/BF01098660
Schieg, M. (2008). Strategies for avoiding asymmetric information in construction project management. Journal of Business Economics and Management, 9(1), 47-51. https://doi.org/10.3846/1611-1699.2008.9.47-51
Shi Ming, Y., & Chee Hian, C. (2005). Obstruction of view and its impact on residential apartment prices. Pacific Rim Property Research Journal, 11(3), 299-315. https://doi.org/10.1080/14445921.2005.11104189
Seo, J. K. (2016). Housing policy and urban sustainable development: evaluating the process of high-rise apartment development in Korea. Urban Policy and Research, 34(4), 330-342. https://doi.org/10.1080/08111146.2015.1118373
Tan, Y., Shen, L., & Langston, C. (2010). Contractors’ competition strategies in bidding: Hong Kong study. Journal of Construction Engineering and Management, 136(10), 1069-1077. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000219
Warszawski, A. (2003). Parametric analysis of the financing cost in a building project. Construction Management and Economics, 21(5), 447-459. https://doi.org/10.1080/0144619032000049638
Won, I. W. (2014). An investment risk management model of apartment building projects using system dynamics techniques (PhD thesis). Kyunggido: Kyunghee University.
Woo, K. M., & Lee, H. K. (2005). A study on setting up the profitability-forecasting model of apartment reconstruction projects. Journal of the Architectural Institute of Korea, 21(9), 189-196.
Yoon, S. C., Yun, S. H., & Paek, J. H. (2006). Forecasting cash flow by considering risk factors in the real estate development project. Journal of the Architectural Institute of Korea, 22(12), 165-172.
Yuan, H. P., Shen, L. Y., Hao, J. J., & Lu, W. S. (2011). A model for cost–benefit analysis of construction and demolition waste management throughout the waste chain. Resources, Conservation and Recycling, 55(6), 604-612. https://doi.org/10.1016/j.resconrec.2010.06.004
Zavadskas, E. K., Turskis, Z., & Tamošaitiene, J. (2010). Risk assessment of construction projects. Journal of Civil Engineering and Management, 16(1), 33-46. https://doi.org/10.3846/jcem.2010.03
Albert, I., Grenier, E., Denis, J. B., & Rousseau, J. (2008). Quantitative risk assessment from farm to fork and beyond: a global Bayesian approach concerning food-borne diseases. Risk Analysis: An International Journal, 28(2), 557-571. https://doi.org/10.1111/j.1539-6924.2008.01000.x
Al-Bahar, J. F., & Crandall, K. C. (1990). Systematic risk management approach for construction projects. Journal of Construction Engineering and Management, 116(3), 533-546. https://doi.org/10.1061/(ASCE)0733-9364(1990)116:3(533)
Ball, M., Meen, G., & Nygaard, C. (2010). Housing supply price elasticities revisited: evidence from international, national, local and company data. Journal of Housing Economics, 19(4), 255-268. https://doi.org/10.1016/j.jhe.2010.09.004
Bae, B. Y., Kim, K. R., Shin, D. w., & Cha, H. S. (2017). Improvement of calculating method of the officially assessed individual house price of aged apartment remodelling reflecting feasibility analysis. Korea Journal of Construction Engineering and Management, 18(6), 89-97.
Caldera, A., & Johansson, Å. (2013). The price responsiveness of housing supply in OECD countries. Journal of Housing Economics, 22(3), 231-249. https://doi.org/10.1016/j.jhe.2013.05.002
Choi, N. H. (2002). Spatial analysis of the location of new public office building for evaluating the locational feasibility. Chungbuk Research Institute, 13(1), 103-118.
Choi, M., Park, M., Lee, H. S., & Hwang, S. (2017). Dynamic modeling for apartment brand management in the housing market. International Journal of Strategic Property Management, 21(4), 357-370. https://doi.org/10.3846/1648715X.2017.1315347
Chen, H. L., O’Brien, W. J., & Herbsman, Z. J. (2005). Assessing the accuracy of cash flow models: the significance of payment conditions. Journal of Construction Engineering and Management, 131(6), 669-676. https://doi.org/10.1061/(ASCE)0733-9364(2005)131:6(669)
Chan, E. H., & Au, M. C. (2009). Factors influencing building contractors’ pricing for time-related risks in tenders. Journal of Construction Engineering and Management, 135(3), 135-145 https://doi.org/10.1061/(ASCE)0733-9364(2009)135:3(135)
Ferreira, F. A., & Jalali, M. S. (2015). Identifying key determinants of housing sales and time-on-the-market (TOM) using fuzzy cognitive mapping. International Journal of Strategic Property Management, 19(3), 235-244. https://doi.org/10.3846/1648715X.2015.1052587
Go, S. S., Hong, J. H., Song, H., & Park, H. K. (2005). A study on the trend of apartment brand and the residents’ preference. Architectural Institute of Korea, 25(1), 19-22.
Huh, Y. K., Hwang, B. G., & Lee, J. S. (2012). Feasibility analysis model for developer-proposed housing projects in the republic of Korea. Journal of Civil Engineering and Management, 18(3), 345-355. https://doi.org/10.3846/13923730.2012.698911
Han, S. P., Jang, H. M., Lee, Y. S., & Kim, J. J. (2007). Model for dynamics cost-benefit analysis with system dynamics. Journal of the Architectural Institute of Korea, 23(1), 163-171.
Isaac, S., & Navon, R. (2009). Modeling building projects as a basis for change control. Automation in Construction, 18(5), 656-664. https://doi.org/10.1016/j.autcon.2009.01.001
Jeong, K. H. (2001). Building a process model for feasibility analysis in an apartment housing development (Master Degree Dissertation). Kyung Hee University.
Koo, S. M., & Jung, M. W. (2007). A basic study on the current state and problems of feasibility study-focused on the evaluation criteria of the existing relative researches. Architectural Institute of Korea, 23(9), 79-88.
Kim, G. H. (2006). A study on the sensitivity analysis of the financial analysis item in apartment project. Korean Journal of Construction Engineering and Management, 7(1), 100-109.
Lee, Y. H., Lee, S. H., & Kim, J. J. (2016). Development of the housing business model to minimize the fluctuation risk of the housing market. Journal of the Korea Academia-Industrial Cooperation Society, 17(10), 635-646. https://doi.org/10.5762/KAIS.2016.17.10.635
Li, Y., & Liao, X. (2007). Decision support for risk analysis on dynamic alliance. Decision Support Systems, 42(4), 2043-2059. https://doi.org/10.1016/j.dss.2004.11.008
Michael, B., Vicky, S., & Michael, S. (2002). Residential real estate prices: a room with a view. Journal of Real Estate Research, 23(1-2), 129-138.
Mills, A. (2001). A systematic approach to risk management for construction. Structural Survey, 19(5), 245-252. https://doi.org/10.1108/02630800110412615
Nasirzadeh, F., Afshar, A., Khanzadi, M., & Howick, S. (2008). Integrating system dynamics and fuzzy logic modelling for construction risk management. Construction Management and Economics, 26(11), 1197-1212. https://doi.org/10.1080/01446190802459924
Park, J. Y. (2018). A system development for risk management of apartment building projects using system dynamics (PhD thesis). Kyunggido: Kyunghee University.
Park, J. B., Kwon, K. B., Cho, Y., & Paek, J. H. (2008). Feasibility analysis model study of realestate development-focused on construction project development of apartment and stores. Journal of the Architectural Institute of Korea, 24(3), 179-186.
Park, M., Chu, Y., Lee, H. S., & Kim, W. (2009). Evaluation methods for construction projects. Journal of Civil Engineering and Management, 15(4), 349-359. https://doi.org/10.3846/1392-3730.2009.15.349-359
Park, H. S., Sun, S. L., & Kim, J. J. (2006). A study of the influential factors on customer-based apartment brand equity. Journal of the Architectural Institute of Korea, 22(7), 83-90.
Rachmawati, F., Soemitro, R. A. A., Adi, T. J. W., & Susilawati, C. (2018). Critical success factor for partnership in low-cost apartments project: Indonesia perspective. Pacific Rim Property Research Journal, 24(2), 149-160. https://doi.org/10.1080/14445921.2018.1461769
Schniederjans, M. J., Hoffman, J. J., & Sirmans, G. S. (1995). Using goal programming and the analytic hierarchy process in house selection. Journal of Real Estate Finance and Economics, 11(2), 167-176. https://doi.org/10.1007/BF01098660
Schieg, M. (2008). Strategies for avoiding asymmetric information in construction project management. Journal of Business Economics and Management, 9(1), 47-51. https://doi.org/10.3846/1611-1699.2008.9.47-51
Shi Ming, Y., & Chee Hian, C. (2005). Obstruction of view and its impact on residential apartment prices. Pacific Rim Property Research Journal, 11(3), 299-315. https://doi.org/10.1080/14445921.2005.11104189
Seo, J. K. (2016). Housing policy and urban sustainable development: evaluating the process of high-rise apartment development in Korea. Urban Policy and Research, 34(4), 330-342. https://doi.org/10.1080/08111146.2015.1118373
Tan, Y., Shen, L., & Langston, C. (2010). Contractors’ competition strategies in bidding: Hong Kong study. Journal of Construction Engineering and Management, 136(10), 1069-1077. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000219
Warszawski, A. (2003). Parametric analysis of the financing cost in a building project. Construction Management and Economics, 21(5), 447-459. https://doi.org/10.1080/0144619032000049638
Won, I. W. (2014). An investment risk management model of apartment building projects using system dynamics techniques (PhD thesis). Kyunggido: Kyunghee University.
Woo, K. M., & Lee, H. K. (2005). A study on setting up the profitability-forecasting model of apartment reconstruction projects. Journal of the Architectural Institute of Korea, 21(9), 189-196.
Yoon, S. C., Yun, S. H., & Paek, J. H. (2006). Forecasting cash flow by considering risk factors in the real estate development project. Journal of the Architectural Institute of Korea, 22(12), 165-172.
Yuan, H. P., Shen, L. Y., Hao, J. J., & Lu, W. S. (2011). A model for cost–benefit analysis of construction and demolition waste management throughout the waste chain. Resources, Conservation and Recycling, 55(6), 604-612. https://doi.org/10.1016/j.resconrec.2010.06.004
Zavadskas, E. K., Turskis, Z., & Tamošaitiene, J. (2010). Risk assessment of construction projects. Journal of Civil Engineering and Management, 16(1), 33-46. https://doi.org/10.3846/jcem.2010.03