FEASIBILITY STUDY OF A RESORT HOTEL IN TANJUNG PINANG

Abstract

Real estate is an important component of a nation's wealth and income. Tremendous opportunities also exist in real estate for individuals to acquire wealth. Since risks exist in the market, there is always a high probability that the reverse might occur. Thus the use of analytical tools and techniques is important to assess the feasibility of each investment. The rules-of-thumb and the heuristic approach in conventional methods lack thoroughness, soundness, flexibility and sophistication. Since Ratcliff and Schwab's (1970) seminal article, there has been a steady stream of literature seeking to graft modern decision theory onto the more traditional real estate investment techniques. This is necessary with the growing scale and magnitude of development in real estate. Investment decision is becoming increasingly complex to justify the use of traditional methods. The modern methods consist of the discounted cash flow models and modern risk analysis. A case study of a resort hotel in Tanjung Pinang is carried out to evaluate the profitability of the development, using the modern methods. A demand analysis based on a survey of potential consumers was undertaken to identify the target market and to design a suitable marketing strategy for the resort hotel development. The development yields a Net Present Value (NPV) of S$l,464,800 and Internal Rate of Return (IRR) of 33.12%. Thus it is recommended that the investor should proceed with his plans.