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Elhag, T M S and Boussabaine, A H (2002) Tender price estimation using artificial neural networks II: modelling. Journal of Financial Management of Property and Construction, 7(01), 49–64.

Henneberry, J and Rowley, S (2002) Property market processes and development outcomes in cities and regions. Journal of Financial Management of Property and Construction, 7(01), 3–15.

Hui, E C M (2002) Land use regulations and property market. Journal of Financial Management of Property and Construction, 7(01), 65–71.

Kishk, M, Al-Hajj, A and Pollock, R (2002) An innovative integrated approach to whole life costing. Journal of Financial Management of Property and Construction, 7(01), 31–40.

Mawdesley, M J, Al-Jibouri, S H and Clark-Hughes, J (2002) A proactive control approach to agreeing entitlement to claims in construction. Journal of Financial Management of Property and Construction, 7(01), 41–8.

Sing, T-F (2002) Irreversibility and uncertainty in property investment. Journal of Financial Management of Property and Construction, 7(01), 17–29.

  • Type: Journal Article
  • Keywords: irreversibility; real options; optimal timing; property investment
  • ISBN/ISSN: 1366-4387
  • URL: http://www.emeraldinsight.com/journals.htm?issn=1366-4387
  • Abstract:
    Irreversibility is a fundamental concept underpinning the real options (contingent claim) methodology. This paper uses a one-factor contingent claim model to demonstrate the significance of the optimal timing of property investment and examine the irreversibility implications on the optimal investment decision. It is shown that when uncertainty of future return increases, the value of option to wait to invest increases correspondingly. It is thus better to keep the investment option alive rather than exercising it. Hence, the level of investment declines in a highly volatile market. Contrary to Tobin's q theory of investment, our numerical results show that it is only optimal to invest if the project value exceeds the opportunity cost by an average of 1.5 times. Investors expect an additional premium from the investment to offset the opportunity loss for giving up the option to wait for more information.