Decision Support System for Housing Developers in Developing Countries under Uncertain Buyer Behavior

Abstract

The financing of housing projects is an essential component for solving the housing problem in developing countries. Traditional cash flow models for housing developments do not consider the stochastic nature of buyer behavior in terms of the time of purchase, the chosen financing method and the probability of default. This paper presents a decision support system to help developers in planning their projects and to better assess the expected profits and risks involved. The proposed model represents a new approach for assessing the profitability of housing projects by considering the effect of buyer behavior on the cash flow of a project. The system could be particularly useful for developing countries where housing development projects can extend over many years due to the long delivery/construction time frames involved as well as the intermittent nature of sales. A Monte-Carlo simulation model is presented that models the financial interactions over the life cycle of the project. This proposed framework was implemented in a prototype program called ARO-META and validated using a real-life case study. Potential developers can utilize this information to select which project to undertake and to determine the expected profits, the payment methods to adopt and the marketing strategy to promote.