Evaluating investment in real estate projects

This study demonstrates the application of a financial model to evaluate the expected return from investing in real estate projects. Based on the analytical framework which is widely adopted in the market, the study examines the dynamics of supply and demand in the space and asset markets and its impact on valuation of real assets in Canada. The study presents a financial and market analysis for the hypothetical project using actual data of real estate properties close to Vancouver in British Columbia. The valuation is based on the fact that real estate provides potential future cash flow for investors, similar to any other asset in the capital market. The study also links the empirical results of this valuation with the supply and demand theory in order to understand the boom and bust that happened in real estate during the last few years. The analysis shows that the high increase in property prices in 2003-2007 has led to a sharp reduction in cap rates which has a great impact on lowering investor returns from real estate properties. The study concludes that the current rent level is below the long-term equilibrium and, therefore, holding a property for rent does not meet the expected return criteria. --P. ii.