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Articles to Submit (Final Revision)

Articles to Submit (Final Revision)

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Published by Sukulpat Khumpaisal

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Published by: Sukulpat Khumpaisal on Jul 31, 2011
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Sukulpat Khumpaisal
, Raymond Talinbe Abdulai
and Daniel Domeher 
Faculty of Architecture and Planning, Thammasat University, Thailand
2, 3
School of the Built Environment, Liverpool John Moores University, Liverpool, UK *Corresponding author:sukulpat@ap.tu.ac.th 
Economic risk plays a critical role in any investment decision making process, particularly inreal estate development projects as this directly affects project¶s income stream. This paper examinesthe Thai real estate practitioners¶ perception of economic risks caused by the several related factorssuch as financial or marketing aspects. The quantitative research approach is adopted and specifically,Explorative Factor Analysis (EFA) has been carried out. It is based on a survey of 241 Thai real estate practitioners, which was conducted inmid 2010mid-2010with a response rate of 52.5% (210 out of 400).This paper clusters the degree of economic risks into an order by using the mentionedEFAstatistical technique. It has been established that Thai practitioners are more concerned with theeconomic risks caused by variation in the price of construction materials morethan other sources of risk. Moreover, this paper underpinned that the economic risks in this industry into are mostly caused by macroeconomic, financial/monetary and marketing factors. Finally, this paper contributes theeconomic risk assessment model, which was established based on the solid statistical/mathematicalframework that suitable for the real estate industry.
: Economic risks, Explorative Factor Analysis (EFA),real estate development project, risk assessment, Thailand real estate development industry,
Uncertainties in the economic and financial environment have a significantimpact on the real estatedevelopment process, since project sponsors normally require the highest return from their investments; theyalso have to bear a relatively high economic and financial risk as well. The typical economic risks in realestate projects are caused by variationsin interest rate, loan and developer credit, sources of developmentfunds and project debt/equity ratio [1], [2], [3]and [4].Normally, project sponsors require the highest life cyclevalue of the properties, which could be measured by Net Present Value (NPV) achieved from the investment[5], [6]. Risks associated with economic and financial uncertainties could strongly affect the projectdevelopment process and that is why real estate professionals and academicians give precedence to economicrisks caused by these kind of financial factors [1], [4].Moreover, the marketing managerial aspects such as wrongestimation of thedemand for and supply of the properties can create an exposure toeconomic risks to real estate project [7],[6]. Other marketing risks relatedto the economic factor are the characteristics, attribution of buyers and tenants. For example, investment incommercial real estate assets delivers a return in the form of an income stream, but the income stream isuncertain to forecast because of there are many unforeseen events or risks that affect the income stream [8] .It is suggested that some mandatory data should be added the economic risks criterion such as the original and banks appraised value, capitalization rate from appraisal and loan to value at inception.The economic riskscould be measured by utilising a sensitivity analysis on the income/loss data of the property [4].Amongst other things interest rate was found to be, a significant indicator for measuring economic risks bythe developers.this is because variation in interest rate affect their earnings by influencing net interest income,
the level of other interest-sensitive income, and operating expenses associated with each specific real estatedevelopmentproject:, and these changes can also affect the underlying value of a firm¶s assets, liabilities andoff-balance sheet instruments and the present value of future cash flows [9].
An overview of Thailand real estate business context
Thecollapse of theglobal economic crisis in 1997 was caused by the downfall of Thailand¶s real estatedevelopment business [10]. Thekey reasons for this crisis wereregardrelatedto financial institutions and realestate developers who lacked monetary discipline and neglected risks intherealthe
estate business. Moreover,Thai developers also did not have the practical risk assessment and management techniques to resolve theconsequences of risks[11], [12].Several Thai scholars [13], [14] predict that the future trend of the Thai real estate sector will be similar to thecircumstances in the 1997 crisis, as practical risk assessment techniques are yet to be developed. This prediction is supported by the incidentsof the global recession from2007 to 2010 and the US sub-primemortgagecrisis.These crisishadsignificantly affected the Thai real estate sector owing
dueto the shortage of housingpurchasingdemand and less funding injected into the housing and residential sub-sector.This article focuses on the real estate development projects in the Bangkok Metropolitan Area (BMA) anditsvicinity (see Figure 1). This areais at theheart of the Thai economic and political system, with the highestdensity of housing projects in comparison to the rest of Thailand [16]. [17]. It containswiththe highest number of real estate developers ± approximately 250 [18].Figure 1: Studied AreaDespite the fact that Thai real estate developers have experienced the waves of economic crises in 1997 and2007-2010, they acknowledged its main causes, but they are still less concerned withtheeconomic risksinfluencedinfluencing tothe success of their projects their project progress.This attitude could be accountedfor by the fact thatThisis because of Thai developers lack of theappropriate knowledgeor skill requiredto assess, identify and understand the risks as well as the fact that they are only interested in maximising thehighest profit from their investment [14] , [15]. It was found that Thai developersarestill employing thenon-systematic assessment methods such as intuition, or experience [19], which are not effective enough toassess the complexity of economic risks.
Bangkok corePathumtani
The aim of this This
article isaimedto put forwardthe
a proper risk assessment methodto for theThailand¶s real estate industry.,itthe article alsoalsointroducesthe
astatisticaldevices tool that toenablethe
decisionmakers to better understandacknowledgethe preciseconsequencesof economic risks precisely. The next sectionis
discussesdiscussingon howtheselectedresearch methodologyselectedincluding the established risk  assessment criteriathatused in the data collection phase.
The adoptedM methodologiesadoptedin this research consist of the
anextensive literature review and thequantitativeapproachsurvey. The questionnaires were distributed to Thai developers in the studied area (seefigure 1),where
eachset of questionnaireset
compriseds2 twosections. The first section was designed toclassify the characteristics of respondents (experience, organisations, type of project, etc.), while the secondsection was aimed especiallyto
assessingthe practitioners¶ perceptions towards economicrisks. This section comprised 14 criteria, which had been separated into two subsections of ³risk consequence´and ³risk likelihood´, respectively (see appendix). Therefore, there are 28 variablescontainwithin theeconomic risk criteria,andthese criteria are then discussed in the following subsection.The O
overallresearch methodology isconcluded summarisedinthefigure 2 below: Figure 2: Research MethodologyFour hundred (400) sets of questionnaires were distributed to the sampled survey participants in January 2010via post, email and hand-in methods. The response rate wasfifty two point five (52.5%)which was satisfied
and this was deemed sufficient enoughto carry outthefurther statistical tests, the data was analysed using SPSS. Simple statistical techniques such as descriptive analysis,Meanalongside with the ExplorativeFactor Analysis were used to analyse the attribution of respondents and cluster the hierarchy of economicrisks in Thailand real estate industry.
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