CAPITAL BUDGETING TECHNIQUES IN SINGAPORE - A CRITIQUE

Abstract

In view of the increasing complexity and scale of real estate investments both locally and overseas, investors have realised that it is imperative to carry out a careful analysis of any real estate investment to determine its viability. Capital budgeting and risk analysis techniques have been used to measure the financial profitability and risk dimensions of a real estate investment respectively for some time. An examination of traditional and modern capital budgeting techniques shows that the latter are theoretically and conceptually more superior than the former as they take into account among other things, the timing of cash flow and future growth in rental and capital values that overcome the deficiencies found in the former. However, this study shows that traditional capital budgeting techniques are still widely used by local real estate investors . Nevertheless, it is encouraging to find that an increasing number of professionals and investors in the real estate industry are using the discounted cash flow techniques in their capital budgeting and real estate investment analysis. Another finding is that there is a trend for more firms to include risk analysis in their real estate investment analysis.