Year of Graduation
Risk evaluation of the real estate investments
Faculty of Economics
The Bachelor paper on "Risk evaluation of the real estate investments" contains 6 figures, 14 tables and an appendix. The paper consists of 78 pages. We used 36 sources in this research.Keywords: real estate investment, uncertainty, risk, risk assessment methods.Instability in the real estate market determines the high price volatility, which in turn, increases the scope of possible impact of the project and the risks of investors. Thereby, decision-making in the project and an assessment of its effectiveness always occurs under uncertain conditions. Striving to minimize financial risks investors need to reduce the uncertainty of the project and develop an effective risk management model that allows to formalize and consolidate the basic decision-making and financial evaluation.Studies of risk in real estate investment gain undeniable relevance to develop effective ways to improve a number of practical aspects of investment activities and therewith increase profitability, estimate and reduce risks. The main purpose of this study is to develop an algorithm of risk assessment for investments in commercial real estate.The object of research is the commercial real estate market as a sphere of investment. The subject of this study are risk assessment techniques when investing in commercial real estate.In addition to the development of the algorithm, scientific novelty of this work consists of systematization and identifying of risks for the projects associated with investing in real estate and compiling the questionnaire allows potential investors to assess the risk factors at all stages of the project.The practical significance of the work lies in the fact that the algorithm for risk assessment can be used in any project associated with investing in real estate. On one hand it is simple to use and on the other hand it allows to obtain reliable and interpretable results.The thesis is structured into an introduction, the main part - three chapters, conclusion, bibliography and appendix. The first chapter covers the theoretical aspects of the real estate market as an investment, identifies key trends in the commercial real estate market in St. Petersburg and describes the principal risks inherent in this sector. The second chapter presents the basic methods of analysis and the project risk assessment algorithm is formulated. The third chapter examines the practical implementation of this algorithm. As an example we implement the algorithm in a project for reconstruction and development of industrial property. The sample project is the reconstruction of industrial buildings in the multi-purpose center in Kolpinsky district. Expert risk analysis revealed that the main risks of the project are rising operating costs, reduction of rental rates, unexpected costs during the construction phase and the attitude of the local authorities in obtaining permits. It was also found that the probability of successful implementation of the project, in practice, is only 35.7%, which indicates extremely high degree of risk.According to the calculation results, the NPV of the project amounted to 56 million rubles, the IRR - 21.3%, the Rate of Return on Total Investment Costs - 17.8%, the discounted payback period - 8 years.As a result, the sensitivity analysis revealed that the greatest risk of the project are the following factors - changes in the level of rental rates , changes in vacancy rates and the size of investments in permanent assets .A scenario analysis showed conflicting results. On one hand, even in the pessimistic version the project will have a positive NPV and high efficiency.On the other hand, a small change in the parameters of the project led to a significant oscillation of the project performance indicators (high coefficient of variation) , which allows us to conclude that there is an extremely high level of risk of investing in this kind of projects.At the end in the paper there were developed some measures aimed at their reduction risks.