Better Buildings in Japan: investigating the trade-o between longevity and cost

Andreas R. Hansen

Student thesis: Master thesis

Abstract

This paper sets out to describe the the Japanese real estate market, describe the particular trait of fast depreciation of real estate assets and its causes as well as presenting a model that seeks to examine the trade-o between higher construction cost and longer service life in terms of the e ect longer service life has on the market returns of the asset. The model will be tested in di erent scenarios related to both the type of asset, location as well as the nature of the depreciation regime as well as the period over which the asset is depreciated. By equating net returns from the same asset in with di erent depreciation models and periods, it is possible to calculate a multiplier, the , to determine the extra cost incurred to reach the same amount of returns as the slowest depreciated asset. Results are ambiguous, however, as there is insu cient data points to do a simulation of a full depreciation period, and returns and variance on all assets are so low, that changes due to market variation are negligible meaning the is mostly the e ects of the depreciation regime. That fact, however, is still valuable knowledge for professional investors in real estate, who needs to choose the depreciation method which in the short run is least detrimental to returns.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2012
Number of pages93