A multicriteria evaluation system for large real estate investments
Abstract
As an economic engine of contemporary societies, the real estate market needs to be carefully analyzed in terms of both urban management and private or public investment. Information on this market’s behavior can facilitate the identification of turning points in societies’ economic history. Analysts should focus not only on conditioning variables and other important determinants of relevance to investment evaluations but also on the impacts of each variable or factor. Measuring these effects is a key activity in decision-making processes. Given real estate’s growing importance to sustainable economic growth, this study concentrates on creating a multicriteria model for evaluating large real estate investments. A constructivist, process-oriented approach was applied in group work sessions held with a panel of experts with experience in dealing with this issue. These specialists structured the problem of evaluating large real estate investments using value-focused thinking (VFT) and cognitive mapping. The best-worst method (BWM) was then applied to calculate trade-offs among decision criteria and calibrate the evaluation system. The results were presented to and validated by a representative of Instituto da Habitação e da Reabilitação Urbana (Institute for Housing and Urban Rehabilitation), who identified the advantages and limitations of the proposed model, and suggested possible improvements.
Keyword : best-worst method (BWM), cognitive mapping, large investment, measurement, real estate, sustainability, value-focused thinking (VFT)
How to Cite
Soares, R. S. B. S., Ferreira, F. A. F., Teixeira, F. J. C. S. N., & Ferreira, N. C. M. Q. F. (2022). A multicriteria evaluation system for large real estate investments. International Journal of Strategic Property Management, 26(4), 305–317. https://doi.org/10.3846/ijspm.2022.17922
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Geltner, D., Kluger, B., & Miller, N. (1992). Incentive commissions in residential real estate brokerage. Journal of Housing Economics, 2(2), 139–158. https://doi.org/10.1016/1051-1377(92)90012-F
Keeney, R. (1996). Value-focused thinking: identifying decision opportunities and creating alternatives. European Journal of Operational Research, 92(3), 537–549. https://doi.org/10.1016/0377-2217(96)00004-5
Keeney, R., & Raiffa, H. (1975). Decision analysis with multiple conflicting objectives preferences and value tradeoffs (IIASA Working Paper No. 75-053). Laxenburg, Austria.
Lousada, A., Ferreira, F., Meidutė-Kavaliauskienė, I., Spahr, R., Sunderman, M., & Pereira, L. (2021). A sociotechnical approach to causes of urban blight using fuzzy cognitive mapping and system dynamics. Cities, 108, 102963. https://doi.org/10.1016/j.cities.2020.102963
Malpezzi, S. (1990). Urban housing and financial markets: some international comparisons. Housing Finance International, 27, 971–1022. https://doi.org/10.1080/00420989020080941
Marttunen, M., Lienert, J., & Belton, V. (2017). Structuring problems for multi-criteria decision analysis in practice: a literature review of method combinations. European Journal of Operational Research, 263, 1–17. https://doi.org/10.1016/j.ejor.2017.04.041
Mendes, A., Ferreira, F., Kannan, D., Ferreira, N., & Correia, R. (2022). A BWM approach to determinants of sustainable entrepreneurship in small and medium-sized enterprises. Journal of Cleaner Production, 371, 1–11. https://doi.org/10.1016/j.jclepro.2022.133300
Mera, K., & Renaud, B. (2000). Asia’s financial crisis and the role of real estate. Journal of Housing Economics, 10, 216–223. https://doi.org/10.1006/jhec.2001.0286
Mohammadi, M., & Rezaei, J. (2020). Bayesian best-worst method: a probabilistic group decision making model. Omega, 96, 1–8. https://doi.org/10.1016/j.omega.2019.06.001
Pérez-Gladish, B., Ferreira, F., & Zopounidis, C. (2021). MCDM/A studies for economic development, social cohesion and environmental sustainability: introduction. International Journal of Sustainable Development & World Ecology, 28(1), 1–3. https://doi.org/10.1080/13504509.2020.1821257
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Pires, A., Ferreira, F., Jalali, M., & Chang, H. (2018). Barriers to real estate investments for residential rental purposes: mapping out the problem. International Journal of Strategic Property Management, 22(3), 168–178. https://doi.org/10.3846/ijspm.2018.1541
Pivo, G. (1996). Toward sustainable urbanization on Mainstreet Cascadia. Cities, 13(5), 339–354. https://doi.org/10.1016/0264-2751(96)00021-2
Rezaei, J. (2015). Best-worst multi-criteria decision-making method. Omega, 53, 49–57. https://doi.org/10.1016/j.omega.2014.11.009
Rezaei, J. (2016). Best-worst multi-criteria decision-making method: some properties and a linear model. Omega, 64, 126–130. https://doi.org/10.1016/j.omega.2015.12.001
Ribeiro, M., Ferreira, F., Jalali, M., & Meidutė-Kavaliauskienė, I. (2017). A fuzzy knowledge-based framework for risk assessment of residential real estate investments. Technological and Economic Development of Economy, 23, 140–156. https://doi.org/10.3846/20294913.2016.1212742
Ribera, F., Nesticò, A., Cucco, P., & Maselli, G. (2020). A multicriteria approach to identify the highest and best use for historical buildings. Journal of Cultural Heritage, 41, 166–177. https://doi.org/10.1016/j.culher.2019.06.004
Romero, C. (1996). Multicriteria decision analysis and environmental economics: an approximation. European Journal of Operational Research, 96(1), 81–89. https://doi.org/10.1016/S0377-2217(96)00118-X
Silva, J., Ferreira, F., Govindan, K., Ferreira, N., & Correia, R. (2022). A CM-BWM approach to determinants of open innovation in small and medium-sized enterprises. In IEEE Transitions on Engineering Management (pp. 1–18). IEEE. https://doi.org/10.1109/TEM.2022.3171591
Sousa, A. (2005). Análise económica e financeira de projectos. Instituto Superior de Ciências Sociais e Políticas da Universidade Técnica de Lisboa.
Vanags, J., & Butane, I. (2013). Major aspects of development of sustainable investment environment in real estate industry. Procedia Engineering, 57, 1223–1229. https://doi.org/10.1016/j.proeng.2013.04.154
Wang, Y., Sun, B., Zhang, X., & Wang, Q. (2020). BWM and MULTIMOORA-based multi-granulation sequential three-way decision model for multi-attribute group decision-making problem. International Journal of Approximate Reasoning, 125, 169–186. https://doi.org/10.1016/j.ijar.2020.07.003
Zanazzi, J. (2003). Anomalías y supervivencia en el método de toma de decisiones de Saaty. In L. Godoy (Ed.), Problemas del conocimiento en ingeniería y geología (pp. 148–170). Editorial Universitas.
Zhang, J. (2016). House price expectations: unbiasedness and efficiency of forecasters. Real Estate Economics, 44, 236–257. https://doi.org/10.1111/1540-6229.12095
Zhang, M., & Yang, W. (2012). Fuzzy comprehensive evaluation method applied in the real estate investment risks research. Physics Procedia, 24, 1815–1821. https://doi.org/10.1016/j.phpro.2012.02.267
Zimmermann, J., & Eber, W. (2017). Criteria on the value of expert’s opinions for analyzing complex structures in construction and real estate management. Procedia Engineering, 196, 335–342. https://doi.org/10.1016/j.proeng.2017.07.208
Archer, W., Ling, D., & McGill, G. (1997). Demographic versus option-driven mortgage terminations. Journal of Housing Economics, 6, 137–163. https://doi.org/10.1006/jhec.1997.0206
Bana e Costa, C., Stewart, T., & Vansnick, J. (1997). Multicriteria decision analysis: some thoughts based on the tutorial and discussion sessions of the ESIGMA meetings. European Journal of Operational Research, 99, 28–37. https://doi.org/10.1016/S0377-2217(96)00380-3
Barbosa, J. (2021). Guia do investimento imobiliário. Principia Editora.
Battisti, F., Chiovitti, A., & Guarini, M. (2018). A methodology for the selection of multi-criteria decision analysis methods in real estate and land management processes. Sustainability, 10(2), 1–28. https://doi.org/10.3390/su10020507
Brill, F., & Raco, M. (2021). Putting the crisis to work: the real estate sector and London’s housing crisis. Political Geography, 89, 102433. https://doi.org/10.1016/j.polgeo.2021.102433
Brito, V., Ferreira, F., Gladish, B., Govindan, K., & Meidutė-Kavaliauskienė, I. (2019). Developing a green city assessment system using cognitive maps and the Choquet integral. Journal of Cleaner Production, 218, 486–497. https://doi.org/10.1016/j.jclepro.2019.01.060
Celik, E., & Gul, M. (2021). Hazard identification, risk assessment and control for dam construction safety using an integrated BWM and MARCOS approach under interval type-2 fuzzy sets environment. Automation in Construction, 127, 103699. https://doi.org/10.1016/j.autcon.2021.103699
Correia, J., Ferreira, F., Meidutė-Kavaliauskienė, I., Pereira, L., Zopounidis, C., & Correia, R. (2020). Factors influencing urban investment attractiveness: an FCM-SD approach. International Journal of Strategic Property Management, 24(4), 237–250. https://doi.org/10.3846/ijspm.2020.12384
Costa, J., Ferreira, F., Spahr, R., Sunderman, M., & Pereira, L. (2021). Intervention strategies for urban blight: a participatory approach. Sustainable Cities and Society, 70, 102901. https://doi.org/10.1016/j.scs.2021.102901
DiPasquale, D., & Wheaton, W. (1992). The markets for real estate assets and space: a conceptual framework. Real Estate Economics, 20(2), 181–198. https://doi.org/10.1111/1540-6229.00579
Ebrahim, M., & Hussain, S. (2010). Financial development and asset valuation: the special case of real estate. Journal of Banking & Finance, 34(1), 150–162. https://doi.org/10.1016/j.jbankfin.2009.07.011
Eden, C. (2004). Analyzing cognitive maps to help structure issues or problems. European Journal of Operational Research, 159, 673–686. https://doi.org/10.1016/S0377-2217(03)00431-4
Faria, P., Ferreira, F., Jalali, M., Bento, P., & António, N. (2018). Combining cognitive mapping and MCDA for improving quality of life in urban areas. Cities, 78, 116–127. https://doi.org/10.1016/j.cities.2018.02.006
Ferreira, F., Jalali, M., & Ferreira, J. (2016). Integrating qualitative comparative analysis (QCA) and fuzzy cognitive maps (FCM) to enhance the selection of independent variables. Journal of Business Research, 69, 1471–1478. https://doi.org/10.1016/j.jbusres.2015.10.127
Ferreira, F., Spahr, R., Sunderman, M., Govindan, K., & Meidutė-Kavaliauskienė, I. (2022). Urban blight remediation strategies subject to seasonal constraints. European Journal of Operational Research, 296(1), 277–288. https://doi.org/10.1016/j.ejor.2021.03.045
Foroozesh, F., Monavari, S., Salmanmahiny, A., Robati, M., & Rahimi, R. (2022). Assessment of sustainable urban development based on a hybrid decision-making approach: group fuzzy BWM, AHP, and TOPSIS–GIS. Sustainable Cities and Society, 76, 103402. https://doi.org/10.1016/j.scs.2021.103402
Franco, S., & Macdonald, J. (2018). The effects of cultural heritage on residential property values: evidence from Lisbon, Portugal. Regional Science and Urban Economics, 70, 35–56. https://doi.org/10.1016/j.regsciurbeco.2018.02.001
Gama, A. (2012). Performance empresarial: conceito, abordagens e métodos de avaliação. Porto Editora.
Geltner, D., Kluger, B., & Miller, N. (1992). Incentive commissions in residential real estate brokerage. Journal of Housing Economics, 2(2), 139–158. https://doi.org/10.1016/1051-1377(92)90012-F
Keeney, R. (1996). Value-focused thinking: identifying decision opportunities and creating alternatives. European Journal of Operational Research, 92(3), 537–549. https://doi.org/10.1016/0377-2217(96)00004-5
Keeney, R., & Raiffa, H. (1975). Decision analysis with multiple conflicting objectives preferences and value tradeoffs (IIASA Working Paper No. 75-053). Laxenburg, Austria.
Lousada, A., Ferreira, F., Meidutė-Kavaliauskienė, I., Spahr, R., Sunderman, M., & Pereira, L. (2021). A sociotechnical approach to causes of urban blight using fuzzy cognitive mapping and system dynamics. Cities, 108, 102963. https://doi.org/10.1016/j.cities.2020.102963
Malpezzi, S. (1990). Urban housing and financial markets: some international comparisons. Housing Finance International, 27, 971–1022. https://doi.org/10.1080/00420989020080941
Marttunen, M., Lienert, J., & Belton, V. (2017). Structuring problems for multi-criteria decision analysis in practice: a literature review of method combinations. European Journal of Operational Research, 263, 1–17. https://doi.org/10.1016/j.ejor.2017.04.041
Mendes, A., Ferreira, F., Kannan, D., Ferreira, N., & Correia, R. (2022). A BWM approach to determinants of sustainable entrepreneurship in small and medium-sized enterprises. Journal of Cleaner Production, 371, 1–11. https://doi.org/10.1016/j.jclepro.2022.133300
Mera, K., & Renaud, B. (2000). Asia’s financial crisis and the role of real estate. Journal of Housing Economics, 10, 216–223. https://doi.org/10.1006/jhec.2001.0286
Mohammadi, M., & Rezaei, J. (2020). Bayesian best-worst method: a probabilistic group decision making model. Omega, 96, 1–8. https://doi.org/10.1016/j.omega.2019.06.001
Pérez-Gladish, B., Ferreira, F., & Zopounidis, C. (2021). MCDM/A studies for economic development, social cohesion and environmental sustainability: introduction. International Journal of Sustainable Development & World Ecology, 28(1), 1–3. https://doi.org/10.1080/13504509.2020.1821257
Pinto, B., Ferreira, F., Spahr, R., Sunderman, M., & Pereira, P. (2022). Analyzing causes of urban blight using cognitive mapping and DEMATEL. Annals of Operations Research. https://doi.org/10.1007/s10479-022-04614-6
Pires, A., Ferreira, F., Jalali, M., & Chang, H. (2018). Barriers to real estate investments for residential rental purposes: mapping out the problem. International Journal of Strategic Property Management, 22(3), 168–178. https://doi.org/10.3846/ijspm.2018.1541
Pivo, G. (1996). Toward sustainable urbanization on Mainstreet Cascadia. Cities, 13(5), 339–354. https://doi.org/10.1016/0264-2751(96)00021-2
Rezaei, J. (2015). Best-worst multi-criteria decision-making method. Omega, 53, 49–57. https://doi.org/10.1016/j.omega.2014.11.009
Rezaei, J. (2016). Best-worst multi-criteria decision-making method: some properties and a linear model. Omega, 64, 126–130. https://doi.org/10.1016/j.omega.2015.12.001
Ribeiro, M., Ferreira, F., Jalali, M., & Meidutė-Kavaliauskienė, I. (2017). A fuzzy knowledge-based framework for risk assessment of residential real estate investments. Technological and Economic Development of Economy, 23, 140–156. https://doi.org/10.3846/20294913.2016.1212742
Ribera, F., Nesticò, A., Cucco, P., & Maselli, G. (2020). A multicriteria approach to identify the highest and best use for historical buildings. Journal of Cultural Heritage, 41, 166–177. https://doi.org/10.1016/j.culher.2019.06.004
Romero, C. (1996). Multicriteria decision analysis and environmental economics: an approximation. European Journal of Operational Research, 96(1), 81–89. https://doi.org/10.1016/S0377-2217(96)00118-X
Silva, J., Ferreira, F., Govindan, K., Ferreira, N., & Correia, R. (2022). A CM-BWM approach to determinants of open innovation in small and medium-sized enterprises. In IEEE Transitions on Engineering Management (pp. 1–18). IEEE. https://doi.org/10.1109/TEM.2022.3171591
Sousa, A. (2005). Análise económica e financeira de projectos. Instituto Superior de Ciências Sociais e Políticas da Universidade Técnica de Lisboa.
Vanags, J., & Butane, I. (2013). Major aspects of development of sustainable investment environment in real estate industry. Procedia Engineering, 57, 1223–1229. https://doi.org/10.1016/j.proeng.2013.04.154
Wang, Y., Sun, B., Zhang, X., & Wang, Q. (2020). BWM and MULTIMOORA-based multi-granulation sequential three-way decision model for multi-attribute group decision-making problem. International Journal of Approximate Reasoning, 125, 169–186. https://doi.org/10.1016/j.ijar.2020.07.003
Zanazzi, J. (2003). Anomalías y supervivencia en el método de toma de decisiones de Saaty. In L. Godoy (Ed.), Problemas del conocimiento en ingeniería y geología (pp. 148–170). Editorial Universitas.
Zhang, J. (2016). House price expectations: unbiasedness and efficiency of forecasters. Real Estate Economics, 44, 236–257. https://doi.org/10.1111/1540-6229.12095
Zhang, M., & Yang, W. (2012). Fuzzy comprehensive evaluation method applied in the real estate investment risks research. Physics Procedia, 24, 1815–1821. https://doi.org/10.1016/j.phpro.2012.02.267
Zimmermann, J., & Eber, W. (2017). Criteria on the value of expert’s opinions for analyzing complex structures in construction and real estate management. Procedia Engineering, 196, 335–342. https://doi.org/10.1016/j.proeng.2017.07.208