NORTH SOUTH UNIVERSITY

Department of Accounting and Finance

Corporate Finance
Group Project on Real Estate Business
FIN 440
Section - 01
Date of Submission: 17.05.2021

Submitted By, Instructor Name and Designation

Polin Fatema - 1620677030 Dr. Fahim Faisal
Shazzad Hossain Efaz - 1813016030 Assistant Professor
Sartaj Zaman – 1821020630 Department of Accounting and Finance
Nabila Sultana Moon - 1611421630
 Group Project Task Allocation Table

Serial Name of Group ID of Allocated Signature

Member Group Responsibility for this
Member Group Project

Group Leader Polin Fatema 1620677030 Excel File:

- Scenario Analysis of
Gulshan area
- Sensitivity Analysis
of Gulshan area

Word File:
- Abstract
- Letter of
Acknowledgement
- Letter of Transmittal
-Introduction
- Methodology
-Recommendation
-Scenario Analysis of
Gulshan area
-Sensitivity Analysis of
Gulshan area
-Assumptions
-Risk Factors

Group Member Shazzad Hossain 1813016030 Excel File:

1 Efaz -Scenario Analysis of
Gulshan area
- Sensitivity Analysis
of Gulshan area

Word File:
-Scenario Analysis of
Gulshan area
-Sensitivity Analysis of
Gulshan area
-Assumptions
Group Member Sartaj Zaman 1821020630 Excel File:
2 -NPV of Gulshan area

Word File:
-NPV of Gulshan area

Group Member Nabila Sultana 1611421630 Excel File:

3 Moon -NPV of Bashundhara
area

Word File:
- NPV of Bashundhara
area
 ABSTRACT

We prepared this project to understand the investment risk and return of rental flat and buying
commercial space from Bashundhara area and Gulshan area which are located in Dhaka.
So, we have prepared NPV, Scenario Analysis and Sensitivity Analysis for a period of 5 years.
NPV was calculated by assessing the rent revenue and the costs. Base scenario, Best scenario
and Worst scenarios has been calculated for each flat to see the positive or negative effects by
changing all the variables. Here also calculated Sensitivity Analysis in 3 cases for each flat by
assumed changes in the rent variables of flats.
Here, Discount Rate 12%, Useful life / economic life 5 years, resale value 1.1 times were
provided by our instructor Fahim Faisal sir.
We collected prices for the properties from “Bikroy.com”. We also explained the Covid
situation, what kind of effect could be there.
 Letter of Acknowledgement

The business project for Gulshan and Bashundhara is the conclusion of not only a one evening
of brainchild but also the hard work and persistence of every single member of the group. Even
though the plan is created for our university course report submission, we guaranteed that our
expectations are provide backing by real life actualities, with the intention of presenting of such
a realistic business project.
In our primary research, we have preferred to use a virtual assessment for the resolution of
appraising the demand for online based information reservation in Dhaka.
It is to be detailed this is the business project for the Bashundhara and Gulshan, as offered by
our team of Section 01 of FIN 440, Spring 2021. The participants of the mentioned team are as
follows.

Sincerely yours,

Polin Fatema
Shazzad Hossain Efaz
Sartaj Zaman
Nabila Sultana Moon
 Letter of Transmittal

17th May 2021

Dr Fahim Faisal

Assistant Professor, Department of Accounting and Finance

School of Business and Economics

North South University

Subject: Submission of the Project for Corporate Finance on Real Estate Business.

Dear Sir,
It is a great pleasure for us to be able to hand in the submission of the Project for Corporate
Finance on Real Estate Business for our proposed area Gulshan and Bashundhara. This plan is
the conclusion of the understanding we have assembled from the relevant course, Corporate
Finance (FIN 440) as well as sources from the Internet, Market Survey and your continuous
supervision.
Throughout the completeness of the time during which we concluded; all members of the group
did their level best by thoroughly working on the sections of the work we allocated among us.
However, we are in the learning curve, this report has enabled us to gain a better understanding
about the assumption and understanding the investment in real estate.
We thank you for your invaluable insight into assisting us in assessing the probability of each
section of the project. We hope you will appreciate our hard work and excuse the minor errors.
Thank you,

Sincerely yours,

Polin Fatema
Shazzad Hossain Efaz
Sartaj Zaman
Nabila Sultana Moon
 Table of Contents

1. INTRODUCTION…………………………………………………………………………….………………………..08
2. METHODOLOGY…………………………………………………………………..………………………………….09
3. ANALYSIS…………………………………………………………………….…………………………………………..10-17
4. Assumption………………………………………………………………………………………………………………18
5. Risk factors ……………………………………………………………………………………….……………………..19
6. Recommendation ……………………………...........................................................................21
7. Reference ………………………………………………………………………………………………………………..22
8. APPENDIX……………………………………………………………………………………....………………………..23
 1. INTRODUCTION

The report consists of investment analysis of the beneficial or non-beneficial for Commercial
space of renowned places in Dhaka, Gulshan area and Bashundhara area. We have selected 2
properties from Bikroy.com whose are located in Dhaka. Those are the advertisement of flat sell
price and flat rent price. All flats are 1800 sqft size.
The total price of the Gulshan’s flat is Tk 26,500,000 and office space rent in Gulshan is Tk
60,000 per month.
The total price of the Bashundhara’s flat is Tk 10,500,000 and office space rent in Bashundhara
is Tk 80,000 per month.
The report of two area’s analysis is categorized into 3 categories of calculation – NPV,
Sensitivity Analysis, Scenario Analysis. Further, each category is calculated by thorough analysis
and criticism. The report contains table to give a simple overview of the business’s performance
and also recommendations for development and progress in the future.
 3. METHODOLOGY

At first, we have selected 2 area Gulshan and Bashundhara from Bikroy.com whose are located
in Dhaka. Then we have selected two 1800 sqft flats for rent price and two 1800 sqft flats basis
of sale price.
In the calculations and analysis part, first we need to calculated NPV. To calculate NPV we need
to calculate CFFA.
Discount Rate 12% and useful life /Economic Life 5 Years is provided by our instructor. Our
calculation for 5 years. After 5 years we will sell it. And we will resell it by 1.1 Times (Resell
Value).
After that we stated our assumptions for Scenario analysis properly. Then we calculated
Scenario Analysis. There are two scenarios, normal scenario and another is Covid Scenario.
Normal scenario is basis on normal Business context and Covid Scenario is extremely bad
situation.
Then we will calculate Sensitivity analysis.
We did Sensitive Analysis for at least 2 Variable rent and maintenance cost.
Then we identify the Risk factors and analysis the risks, where we mentioned that if we invest in
this sector, what are those risks.
Then we select one area from these two areas which is more beneficent.
Then, we provided our recommendations.
 4. ANALYSIS

Area: Bashundhara

Base Case:
We have selected the 1800 sqft flat from Bikroy.com which is located in Bashundhara
residential area. The selected property is 1800 square feet and its price Tk14000000, monthly
rent TK80,000. By, calculating in excel, we get net income TK846000 after deducting the tax
Tk20000. At 12% discount rate, after 5 years if we sell this property at 1.1 times of its
purchasing price then our NPV value will be -2399082. In conclusion, we can say that if we
invest in this project, it will huge loss as the value of NPV is negative.

Year 2021 2022 2023 2024 2025 2026

OCF
924,000 1,015,100 1,138,760 1,246,036
818,000
Changes in NCS
13860000
(14,560,000)
CFFA
924,000 1,015,100 1,138,760 15106036
(14,560,000) 818,000

NPV -2,399,082

The NPV of the commercial flat for 5 years is -2,399082 which is negative.
 Scenario analysis

SCENARIO 1:
(Best case)
Firstly, we assume a scenario, where economy of Bangladesh is booming for the next 5 years
and urbanization is increasing. The rent increases by 10% every year and the fixed cost
increases by 2% every year. We accepted individuals are happy with the compensation are the
as economy is blasting. We made the accompanying suppositions to figure the NPV in this
scenario.

Assumptions
Change Increased by
Rent 10%
Operating Costs 2%

We made the accompanying presumptions to figure the using the accompanying suppositions
to compute the NPV utilizing 12% discount rate we land up with a negative NPV of – 2003693.
An impossible situation to make such a speculation.

Scenario 2: Worse case:

In this scenario, where economy of Bangladesh is normal for the next 5 years and individuals are
gradually moving towards the city for work. The rent increases by 5% every year and the fixed
costs increase by 5% every year. We have expected that individuals are happy with the costs and
the economy is steady for the following 05 years. We made the accompanying suppositions to
compute the NPV in this situation.

Assumptions
Change increased by
Rent 5%
Fixed Cost 5%
Utilizing the accompanying presumptions to ascertain the NPV utilizing 12% discount rate we
land up with a negative NPV of – 2320236. We get a negative NPV. This is a slight lessening yet
at the same time stays a profoundly hazardous task because of the Negative NPV.
This is an impossible situation to make such investment.

Scenario 3: Worst case:

In this case, we assume a scenario, where rent increases by 3% every year, operating cost
increases by 10% every year.

Assumptions
Change Increased by
Rent 3%
Operating Cost 10%

Utilizing the accompanying presumptions to ascertain the NPV utilizing 12% discount rate we
land up with a negative NPV of –3210854.
This is thought to be the most pessimistic scenario among the 3 cases. Despite the fact that
there isn't a very remarkable reduction in rate from the second case this is a far-fetched and
negative situation to make such a venture.

The three situations built with the suspicions gave above, gives us negative NPV, despite the
fact that we accepted a resale worth of 1.1 times the genuine cost following 5 years. The
speculation appears to be negative and profoundly unsafe despite the fact that the
progressions in the NPVs are not that critical, in these three situations.

Sensitivity Analysis:
It examines effect on NPV by changing only one input variable.
SENSITIVITY CASE 1

Year 2021 2022 2023 2024 2025 2026

OCF 600500 530,960 477,882 449,119 394,532
Changes in NCS (27,560,000) 29150000
CFFA -27,560,000 600500 530,960 477,882 449,119 29544532.29

NPV -8,223,776

SENSITIVITY CASE 2

Year 2021 2022 2023 2024 2025 2026

OCF 600500 503,600 427,540 379,636 309,272
Changes in
29150000
NCS (27,560,000)
CFFA -27,560,000 600500 503,600 427,540 379,636 29459272.4

NPV -8,357,866

SENSITIVITY CASE 3

Year 2021 2022 2023 2024 2025 2026

OCF 600500 469,400 367,690 301,062 217,552
Changes in NCS
26235000
(27,560,000)
CFFA -27,560,000 600500 469,400 367,690 301,062 26452552.28
 NPV -9,988,128

Area: Gulshan

Base Case:
The commercial flat is situated in Dhanmondi and is 2268 sqft and was bought at the price of
70,000,000.

Year 2021 2022 2023 2024 2025 2026

OCF
600,500 596,325 660,341 655,738 689,170
Changes in NCS
(27,560,000) 29,150,000
CFFA
(27,560,000) 600,500 596,325 660,341 655,738 29,839,170

NPV -7,794,781

The NPV of the commercial flat for 5 years is -7794781 which is negative.
 Scenario analysis

Scenario 1: Best case

Firstly, we assume a scenario, where economy of Bangladesh is booming for the next 5 years
and urbanization is increasing. The rent increases by 10% every year and the fixed cost
increases by 2% every year. We accepted individuals are happy with the compensation are the
as economy is blasting. We made the accompanying suppositions to figure the NPV in this
scenario.

Assumptions
Change Increased by
Rent 10%
Operating Costs 2%

We made the accompanying presumptions to figure the using the accompanying suppositions
to compute the NPV utilizing 12% discount rate we land up with a negative NPV of - 7486560
An impossible situation to make such a speculation.

Scenario 2: Worse case

In this scenario, where economy of Bangladesh is normal for the next 5 years and individuals are
gradually moving towards the city for work. The rent increases by 5% every year and the fixed
costs increase by 5% every year. We have expected that individuals are happy with the costs and
the economy is steady for the following 05 years. We made the accompanying suppositions to
compute the NPV in this situation.

Assumptions
Change increased by
Rent 5%
Fixed Cost 5%
Utilizing the accompanying presumptions to ascertain the NPV utilizing 12% discount rate we
land up with a negative NPV of – 7726345. We get a negative NPV. This is a slight lessening yet
at the same time stays a profoundly hazardous task because of the Negative NPV.
This is an impossible situation to make such investment.

Scenario 3: Worst case

In this case, we assume a scenario, where rent increases by 3% every year, operating cost
increases by 10% every year.

Assumptions
Change Increased by
Rent 3%
Operating Cost 10%

Utilizing the accompanying presumptions to ascertain the NPV utilizing 12% discount rate we
land up with a negative NPV of –9284966.
This is thought to be the most pessimistic scenario among the 3 cases. Despite the fact that
there isn't a very remarkable reduction in rate from the second case this is a far-fetched and
negative situation to make such a venture.

The three situations built with the suspicions gave above, gives us negative NPV, despite the
fact that we accepted a resale worth of 1.1 times the genuine cost following 5 years. The
speculation appears to be negative and profoundly unsafe despite the fact that the
progressions in the NPVs are not that critical, in these three situations.
SENSITIVITY CASE 1

Year 2021 2022 2023 2024 2025 2026

OCF 600500 530,960 477,882 449,119 394,532
Changes in NCS
29150000
(27,560,000)
CFFA -27,560,000 600500 530,960 477,882 449,119 29544532.29

NPV -8,223,776

SENSITIVITY CASE 2

Year 2021 2022 2023 2024 2025 2026

OCF 60050 427,54 379,63
503,600 309,272
0 0 6
Changes in NCS
(27,560,000 29150000
)
CFFA 60050 427,54 379,63 29459272.
-27,560,000 503,600
0 0 6 4

NPV -8,357,866

SENSITIVITY CASE 3
 Year 2021 2022 2023 2024 2025 2026
OCF 600500 469,400 367,690 301,062 217,552
Changes in NCS
26235000
(27,560,000)
CFFA -27,560,000 600500 469,400 367,690 301,062 26452552.28

NPV -9,988,128

Assumptions:

Rental Income
1. We consider that there will be 100% occupancy rate. As both are commercial property,
demand for commercial property is normally high in our country.
2. Normally rent is revised after two years to five years. We have assumed that the rent will
be revised after two years for base case scenario.
Operating costs
3. Operating costs normally shared all flat owners and to some extent might be transferred
to the tenant. We have assumed that the tenant shall share service charges and owner
shall bear other maintenance expenses of common facilities and property.
4. It is assumed that operating costs will increase at 5% which is average inflation rate of
the country.
Discount rate
5. Discount rate has been assumed to be 12% considering high risk of the investment.
Project life and resell value
6. Project life has been assumed to be 5 years and after five years the property shall be sold.
We observe that in Bangladesh property price increase. As such we assumed that it will
be sold at 110% of purchase price. All registration expense will be borne by purchaser.
Taxes and Levies
 7. There will be 4% costs of registration which shall have be paid by the purchaser for
transfer of ownership. It has been considered as initial costs of investment
8. There will be Tax deducted at source (TDS) at the rate of 5% as per ITO-1984. The
tenant shall pay rent after deducting this tax. This has been excluded from annual rental
income.
9. Net income from property shall be taxed at individual level as per income range. At that
time, TDS which is mainly an advance tax shall be adjusted or credited. We have ignored
taxes at personal level due to high variability of rate depending on an individual’s income
level and income from other sources.

Risk factors

1. Market risks:
Demand for property might decrease and leading to risk of vacancy and lower rent. Due to Covid
-19 and other economic reasons demand for shop has been decreased and demand for small
office has been also decreased. So, there is high probability that the property might remain
vacant due to low demand and rent might fall drastically due to lower demand.

2. Extended vacancy
The property might remain vacant for longer period of time due to lower demand.

3. Ownership risk
The property might not be freehold or free of ownership defects. After purchase there might
discover ownership defects or defective title. If this occurs, it will incur huge legal and other
costs for solving problem if ever possible.

4. Delinquent Tenant
The tenant might delay or fail to pay rent as per agreement. Which shall further aggravate the
project acceptability.
 5. Abnormal repair and maintenance costs
Due to low quality of works, there might require some unusual repair and maintenance costs
during this project life. Moreover, we need to overhaul or renovate the project before reselling
event.

6. Risk of fire and earthquake

The property might fall into damage due to natural and human created reasons. For which we
might need to take insurance coverage which shall further increase costs of maintenance.
7. Liquidity risk
Due to low demand of commercial property, we might not be able to sell the property after five
years. It might take long time to find willing buyer to purchase the property at our asking price.

8. Interest rate risks

Interest rate might increase after lifting the existing cap on interest. If interest rate increases,
discount factor shall also increase.
 Recommendation:

From the above examination, we can see that the worth of NPV is negative in both of our
business and private properties which shows that contributing any of them will be not beneficial.
It is hard to settle on a choice just by breaking down NPV so we did both situation and
affectability examination.
REFERANCE:

https://bikroy.com/en/ad/1800sft-2bedroom-luxurious-full-furnished-rentbasundhara-for-
rent-dhaka

https://bikroy.com/en/ad/bsundhraayy-km-daame-lek-bhiu-phlaatt-for-sale-dhaka

https://bikroy.com/en/ad/1800sft-office-space-rent-gulshan1-for-rent-dhaka

https://bikroy.com/en/ad/commercial-office-space-for-sale-at-gulshan-for-sale-dhaka-1
8. APPENDIX