DOI: 10.14457/tu.the.2017.331
title: System dynamics modeling of profit enhancement in real estate projects in Ho Chi Minh City, Vietnam

description: Economic development and population expansion lead Ho Chi Minh City, Viet Nam, to higher housing demand. However, housing supply is currently lower than its demand. This leads to a good opportunity for real estate developers to invest into residential projects, and make more profit. To enhance the profit, however, the developers must consider a number of influential factors, such as the population growth, changes in house price, various construction schedules, and fluctuated construction interest rates. This makes it very difficult for them to maximize profit and eliminate loss, as there is no systematic study to examine relationships among key profit factors in the long term. This study, therefore, focuses on examining key profit factors, as well as their interactions, and developing a dynamic model of profit enhancement to effectively plan for profit enhancement in the long term.A hypothesized profit model was developed, utilizing a structural equation modeling technique, with five key profit factors, including 1) the Urban Population, 2) Buyer Capacity, 3) Housing Supply, 4) Housing Economics, and 5) Housing Finance factors, with a total of 16 associated variables. A questionnaire survey was developed, and sent to real estate developers in Ho Chi Minh City, Viet Nam, for data collection purpose. The targeted respondents were selected based on an assumption that they had experiences in real estate development, and held senior positions in their respective companies. The data collected were used with a structural equation modelling analysis, and the results reveal that the Housing Finance factor plays an important role in enhancing profit, as it influences both demand (the Buyer Capacity factor) and supply (the Housing Supply factor), directly and indirectly. The Housing Economics factor, on the other hand, directly influences the supply, but indirectly affects the demand through the Housing Finance factor.The dynamic model of profit enhancement is then developed, based on five key profit factors, utilizing a system dynamics modeling technique. Causal relationships, achieved from the structural equation modeling analysis, are also used to develop equations for the model. The developed dynamic model is simulated, and the simulation results reveal that with a higher trend of small families, profit of residential projects can be enhanced. Developers should focus on small-sized houses in the next four years, as they can be afforded by majority of the households. In the long term, however, the focus should be shifted to larger-sized houses, as they bring more profit to the industry. Real estate developers can test the developed model with alternative scenarios, reflecting different strategies to effectively plan for profit enhancement, which suits with their environment. Such strategies as various payment periods, down payments, or combinations of them can be tested to examine profit in the long term. Government, on the other hand, can use the developed model to assist developers by adjusting, for example, interest rate and debt to equity ratio, to achieve the expected profit.The dynamic model of profit enhancement brings insight into the five key profit factors, and how they influence profit in the long term. Developers can use the developed model to effectively plan for profit improvement through a number of strategies. This proves the contributions of study results to the real estate industry.