A dynamic boolean model of roll-over financing for residential real estate development in China

Nga Na Leung, Kevin Grosskopf, Lezhou Zhan, Raja R.A. Issa

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

During the past two decades, China has maintained strong growth in residential real estate development, which has become increasingly attractive to foreign investors. However, the People's Bank of China released new housing loan regulations in June 2004 effectively eliminating development subsidies, raising interest rates and equity requirements for both developers and buyers, making debt and public equity expensive and rarely accessible. As a result, developers with limited private equity increasingly have to rely on internally generated cash flow for roll-over development. Roll-over financing means using sale proceeds from buildings completed and sold early in the project life-cycle to finance later construction phases. The key issue for successful roll-over is to determine the optimal interval between construction phases. However, quantitative analysis of optimal interval would require tremendous work in the traditional discounted cash flow (DCF) models. As a result, this study proposes a dynamic model with Boolean variable constraints, which defines cash flows as Boolean variables, and enables them to change with construction intervals. The dynamic model not only simplifies quantitative analysis for optimal interval, but also depicts a complete picture for decision making in various scenarios. The model is applied to a hypothetical project consisting of four (4) high-rise residential condominiums developed in sequence in Shenzhen, China. It easily computes optimal intervals in both cash-constraint and cash-sufficient situations.

Original languageEnglish (US)
Title of host publicationConstruction Research Congress 2005
Subtitle of host publicationBroadening Perspectives - Proceedings of the Congress
EditorsI.D. Tommelein
Pages135-144
Number of pages10
StatePublished - Nov 14 2005
EventConstruction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress - San Diego, CA, United States
Duration: Apr 5 2005Apr 7 2005

Publication series

NameConstruction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress

Other

OtherConstruction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress
CountryUnited States
CitySan Diego, CA
Period4/5/054/7/05

Fingerprint

Dynamic models
Finance
Chemical analysis
Life cycle
Sales
Decision making

Keywords

  • Boolean variable constraints
  • Dynamic modeling
  • Residential real estate development
  • Roll-over financing

ASJC Scopus subject areas

  • Engineering(all)

Cite this

Leung, N. N., Grosskopf, K., Zhan, L., & Issa, R. R. A. (2005). A dynamic boolean model of roll-over financing for residential real estate development in China. In I. D. Tommelein (Ed.), Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress (pp. 135-144). (Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress).

A dynamic boolean model of roll-over financing for residential real estate development in China. / Leung, Nga Na; Grosskopf, Kevin; Zhan, Lezhou; Issa, Raja R.A.

Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress. ed. / I.D. Tommelein. 2005. p. 135-144 (Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress).

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Leung, NN, Grosskopf, K, Zhan, L & Issa, RRA 2005, A dynamic boolean model of roll-over financing for residential real estate development in China. in ID Tommelein (ed.), Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress. Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress, pp. 135-144, Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress, San Diego, CA, United States, 4/5/05.
Leung NN, Grosskopf K, Zhan L, Issa RRA. A dynamic boolean model of roll-over financing for residential real estate development in China. In Tommelein ID, editor, Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress. 2005. p. 135-144. (Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress).
Leung, Nga Na ; Grosskopf, Kevin ; Zhan, Lezhou ; Issa, Raja R.A. / A dynamic boolean model of roll-over financing for residential real estate development in China. Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress. editor / I.D. Tommelein. 2005. pp. 135-144 (Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress).
@inproceedings{630a0ffbf1ef4ec4890ac9883ba588f6,
title = "A dynamic boolean model of roll-over financing for residential real estate development in China",
abstract = "During the past two decades, China has maintained strong growth in residential real estate development, which has become increasingly attractive to foreign investors. However, the People's Bank of China released new housing loan regulations in June 2004 effectively eliminating development subsidies, raising interest rates and equity requirements for both developers and buyers, making debt and public equity expensive and rarely accessible. As a result, developers with limited private equity increasingly have to rely on internally generated cash flow for roll-over development. Roll-over financing means using sale proceeds from buildings completed and sold early in the project life-cycle to finance later construction phases. The key issue for successful roll-over is to determine the optimal interval between construction phases. However, quantitative analysis of optimal interval would require tremendous work in the traditional discounted cash flow (DCF) models. As a result, this study proposes a dynamic model with Boolean variable constraints, which defines cash flows as Boolean variables, and enables them to change with construction intervals. The dynamic model not only simplifies quantitative analysis for optimal interval, but also depicts a complete picture for decision making in various scenarios. The model is applied to a hypothetical project consisting of four (4) high-rise residential condominiums developed in sequence in Shenzhen, China. It easily computes optimal intervals in both cash-constraint and cash-sufficient situations.",
keywords = "Boolean variable constraints, Dynamic modeling, Residential real estate development, Roll-over financing",
author = "Leung, {Nga Na} and Kevin Grosskopf and Lezhou Zhan and Issa, {Raja R.A.}",
year = "2005",
month = "11",
day = "14",
language = "English (US)",
isbn = "0784407541",
series = "Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress",
pages = "135--144",
editor = "I.D. Tommelein",
booktitle = "Construction Research Congress 2005",

}

TY - GEN

T1 - A dynamic boolean model of roll-over financing for residential real estate development in China

AU - Leung, Nga Na

AU - Grosskopf, Kevin

AU - Zhan, Lezhou

AU - Issa, Raja R.A.

PY - 2005/11/14

Y1 - 2005/11/14

N2 - During the past two decades, China has maintained strong growth in residential real estate development, which has become increasingly attractive to foreign investors. However, the People's Bank of China released new housing loan regulations in June 2004 effectively eliminating development subsidies, raising interest rates and equity requirements for both developers and buyers, making debt and public equity expensive and rarely accessible. As a result, developers with limited private equity increasingly have to rely on internally generated cash flow for roll-over development. Roll-over financing means using sale proceeds from buildings completed and sold early in the project life-cycle to finance later construction phases. The key issue for successful roll-over is to determine the optimal interval between construction phases. However, quantitative analysis of optimal interval would require tremendous work in the traditional discounted cash flow (DCF) models. As a result, this study proposes a dynamic model with Boolean variable constraints, which defines cash flows as Boolean variables, and enables them to change with construction intervals. The dynamic model not only simplifies quantitative analysis for optimal interval, but also depicts a complete picture for decision making in various scenarios. The model is applied to a hypothetical project consisting of four (4) high-rise residential condominiums developed in sequence in Shenzhen, China. It easily computes optimal intervals in both cash-constraint and cash-sufficient situations.

AB - During the past two decades, China has maintained strong growth in residential real estate development, which has become increasingly attractive to foreign investors. However, the People's Bank of China released new housing loan regulations in June 2004 effectively eliminating development subsidies, raising interest rates and equity requirements for both developers and buyers, making debt and public equity expensive and rarely accessible. As a result, developers with limited private equity increasingly have to rely on internally generated cash flow for roll-over development. Roll-over financing means using sale proceeds from buildings completed and sold early in the project life-cycle to finance later construction phases. The key issue for successful roll-over is to determine the optimal interval between construction phases. However, quantitative analysis of optimal interval would require tremendous work in the traditional discounted cash flow (DCF) models. As a result, this study proposes a dynamic model with Boolean variable constraints, which defines cash flows as Boolean variables, and enables them to change with construction intervals. The dynamic model not only simplifies quantitative analysis for optimal interval, but also depicts a complete picture for decision making in various scenarios. The model is applied to a hypothetical project consisting of four (4) high-rise residential condominiums developed in sequence in Shenzhen, China. It easily computes optimal intervals in both cash-constraint and cash-sufficient situations.

KW - Boolean variable constraints

KW - Dynamic modeling

KW - Residential real estate development

KW - Roll-over financing

UR - http://www.scopus.com/inward/record.url?scp=27644470022&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=27644470022&partnerID=8YFLogxK

M3 - Conference contribution

AN - SCOPUS:27644470022

SN - 0784407541

SN - 9780784407547

T3 - Construction Research Congress 2005: Broadening Perspectives - Proceedings of the Congress

SP - 135

EP - 144

BT - Construction Research Congress 2005

A2 - Tommelein, I.D.

ER -