1

Executive Summary

In this report, we calculated the Net present Value of two apartments from two different areas
of Dhaka. For this purpose, we chose Gulshan and Banani to analyze. We collected the data from
the website of Bikroy.com and Google. Also, we had to assume most of the values to calculate
NPV. After doing the calculation, we found out that both of the apartments have negative NPVs.
We were instructed to analyze the scenario and sensitivity analysis. In both analysis, it was shown
that the NPVs were negative. In sensitivity, we changed two variables- maintenance cost and rent.
After all these speculation, we came to a decision that it will not be a good decision to invest in
any of these apartments.
3

Table of Contents

Introduction .................................................................................................................................................. 4
NPV Calculation............................................................................................................................................. 5
Scenario Analysis........................................................................................................................................... 9
Sensitivity Analysis ...................................................................................................................................... 17
Risk Analysis ................................................................................................................................................ 23
Recommendation........................................................................................................................................ 25
Conclusion ................................................................................................................................................... 25
Appendix ..................................................................................................................................................... 26
4

Introduction

This report is about the financial decision to invest in an apartment between two areas. To do
that, we have to calculate Net present Value (NPV) of those apartments. NPV is the difference
between the present value of cash inflows and the present value of cash outflows over a period of
time. NPV is used in capital budgeting and investment planning to analyze the profitability of a
projected investment or project. If the value of NPV is positive, it is suggested to invest in that
project. In this report, we calculated NPV to find out where to invest or not. Finally, we discussed
the risks that can occur due to the investment and gave some recommendation regarding it.
5

NPV Calculation

Assumptions and Data (Gulshan)

We assumed the cost of a flat in Gulshan is 34,500,000 and the registration fee is 3,450,000.
The renovation cost is 3,000,000. The holding tax and discount rate both are 12%. We calculated
the mouza value by multiplying the total apartment area with 16 taka which is 400,000.
In our project, we assumed that in the base case, which is the Covid situation, the tenant would
stay for 8 months in Year 1. Other charges and costs will occur even though there will be no tenants
and that’s why those were multiplied with 12.
In year 2, the tenant will stay for 9 months and the rest of the calculation will be the same.
In year 3 and year 4, we assumed the tenants would stay for 10 months while in year 5 it will be
11 months. After 2 years, which is year 3, there will be an additional cost of 4,000 taka to paint
the whole apartment. Other values are given below-

Capital Spending 34500000

Registration Fee 3450000
Renovation Cost 3000000
Holding Tax 12%
Discount Rate 12%
Selling Price after 5 years 37950000
Mouza Value/sqft 16 taka
Mouza value/2500sqft apartment 400000
Additional Maintenance cost after 3 years 4000
6

Pro forma statement,

Year 1 Year 2 Year 3 Year 4 Year 5

Rent Revenue 10,00,000 11,70,000 13,20,000 13,50,000 1,507,000

Variable Cost 36,000 39,600 41,400 42,600 45,000

Fixed Cost 45,600 46,800 49,200 50,400 55,200

Depreciation 690,000 690,000 690,000 690,000 690,000

EBIT 2,28,400 3,93,600 5,39,400 5,67,000 7,16,800

Holding Tax 48,000 48,000 48,000 48,000 48,000

(12%)
Net Profit 180,400 345,600 87,350 519,000 668,800
OCF 870,400 1,035,600 1,181,400 1,209,000 1,358,800

YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

OPERATING 870,400 1,035,600 1,181,400 1,209,000 1,358,800
CASHFLOW
-34,500,000 37,950,000
-3,450,000
-3,000,000
-4,000
CFFA -40950000 870,400 1,035,600 1,177,400 1,209,000 39,308,800
NPV (15,436,022.96)
7

Assumptions and Data (Banani)

Here, we assumed the cost of a flat in Banani is 30,000,000 and the registration fee is
3,000,000. The renovation cost is 1,300,000. The holding tax and discount rate both are 12%. We
calculated the mouza value by multiplying the total apartment area with 15 taka which is 375,000.
The rent of every year is same as mentioned in previously in Gulshan’s case. Also, here will
be an additional cost of 3,000 taka in year 2 to remodel the apartment. Other values are-

Capital Spending 30000000

Registration Fee 3000000
Renovation Cost 1300000
Holding Tax 12%
Discount Rate 12%
Selling Price after 5 years 33000000
Mouza Value/sqft 15 taka
Mouza value/2500sqft apartment 375000
Additional Maintenance cost after 2 years 3000

Pro forma statement

Year 1 Year 2 Year 3 Year 4 Year 5

Rent Revenue 560,000 657,000 760,000 800,000 935,000
Variable Cost 28,800 30120 31080 31920 33000
Fixed Cost 36,600 37800 39600 40920 42600
Depreciation 600,000 600,000 600,000 600,000 600,000
EBIT -105400 -10,920 89,320 127,160 259,400
Holding Tax 45,000 45,000 45,000 45,000 45,000
(12%)
Net Profit -150,400 -55,920 44,320 82,160 214,400
OCF 449,600 544,080 644,320 682,160 814,400
8

YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

OPERATING 449,600 544,080 644,320 682,160 814,400
CASHFLOW
-30000000 33,000,000
-3,000,000
-1,300,000
-3000
CFFA -34300000 449600 541080 644320 682,160 33,814,400
NPV (13,387,887.83)
9

Scenario Analysis
We have taken the information regarding rent and price of the apartments from online. As the
world is currently going through a pandemic, these information reflect the effect of COVID
pandemic. We are considering this covid situation as our base case. This pandemic situation might
diminish or even might get worse in the future. This will impact the economy of the country and
the real estate sector will greatly depend on that. This change in situation will trigger multiple
factors related to rent and expenditures of the real estate properties to change on which the profit
or loss incurred from the investment will vary. We wanted to see, how the changes in multiple
elements affect the overall profitability of the investment.
We are assuming the rent, occupancy and the variable costs of the apartments will vary among
base, best and worst cases. We have analyzed how these combined changes affect these two
investments.

Gulshan
Base case
As we have already seen in the previous NPV calculation based on current scenario, the NPV
of the base case is -1, 54, 36, 023 BDT. This means, if we invest in this property and resell it after
5 years for 1.1times of the price, we will have to face 15436023 BDT loss considering the current
market scenario.

Best Case
We are assuming, the rent revenue and occupancy will increase following these given
information-
Year 1 Year 2 Year 3 Year 4 Year 5
Base Best Base Best Base Best Base Best Base Best
Case Case Case case Case Case Case Case Case Case
Monthly 125000 150000 130000 155000 132000 157000 135000 158500 137000 160000
Rent
Revenue (in
BDT)
Annual 8 11 9 12 10 12 10 12 11 12
Occupancy
(months)
Total 36000 43200 39600 46800 41400 48600 42600 50400 45000 54000
Annual
Variable
cost
(In BDT)
10

Our assumption here is, the best case would be if the owner of the apartment finds a loyal
renter for a higher rent than the base rent within 1 month of the purchase and who will stay for 5
years in the apartment. So, in the first year the occupancy is 11 months and in the next four years,
the occupancy will be 12 months a year. On the other hand, variable cost depends on the usage of
various variable aspects which is dependent on the number of residents of the building. As in the
best case, we are assuming the occupancy is higher than the base case (Covid Case), so the building
variable costs will also be higher.
Other things remaining the same, we’ve formed the pro forma statement for the best case and
calculated the NPV from that.

Year 1 Year 2 Year 3 Year 4 Year 5

Rent Revenue 1650000 1860000 1884000 1902000 1920000

Total Variable 43200 46800 48600 50400 54000

Cost
Total Fixed 45600 46800 49200 50400 55200
Cost
Depreciation 690000 690000 690000 690000 690000
EBIT 871200 1076400 1096200 1111200 1120800

Holding Tax 48000 48000 48000 48000 48000

Net Profit 823200 1028400 1048200 1063200 1072800

OCF 1513200 1718400 1738200 1753200 1762800

Following the same procedure shown in the NPV calculation section, we have found that
NPV for the best case scenario is -13346362 BDT.

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-
34500000 1513200 1718400 1738200 1753200 1762800
Best Case
-3450000 -4000 37950000
-3000000

-
CFFA
40950000 1513200 1718400 1734200 1753200 39712800

NPV (13,346,361.78) taka

11

Worse Case
For the worse case, we are assuming the rent revenue and the occupancy will decrease
following this given information,
Year 1 Year 2 Year 3 Year 4 Year 5
Base Worse Base Worse Base Worse Base Worse Base Worse
Case Case Case Case Case Case Case Case Case case
Monthly 125000 110000 130000 115000 132000 117000 135000 117500 137000 118000
Rent
Revenue (in
BDT)
Annual 8 6 9 7 10 8 10 8 11 9
Occupancy
(months)
Total Annual 36000 31800 39600 33600 41400 35400 42600 37800 45000 40800
Variable cost
(In BDT)

Other things remaining the same, the pro forma statement for the assumed worse case
scenario is given below,
Year 1 Year 2 Year 3 Year 4 Year 5

Rent Revenue 660000 805000 936000 940000 1062000

Total Variable 31800 33600 35400 37800 40800

Cost
Total Fixed Cost 45600 46800 49200 50400 55200

Depreciation 690000 690000 690000 690000 690000

EBIT -107400 34600 161400 161800 276000

Holding Tax 48000 48000 48000 48000 48000

Net Profit -155400 -13400 113400 113800 228000

OCF 534600 676600 803400 803800 918000

Using this data, the NPV for the worse case is -16798724 BDT.
12

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-34500000 534600 676600 803400 803800 918000
Worse
-3450000 -4000 37950000
Case
-3000000

CFFA -40950000 534600 676600 799400 803800 38868000

NPV (16,798,723.60) taka

In summary,
Year Net Profit (in BDT) OCF (in BDT) NPV (in BDT)
Best Base Worse Best Base Worse Best Base Worse
1 823200 180400 534600 1513200 870400 534600
2 1028400 345600 676600 1718400 1035600 676600

3 1048200 491400 803400 1738200 1181400 803400 -13346362 -15436023 -16798724

4 1063200 519000 803800 1753200 1209000 803800
5 1072800 668800 918000 1762800 1358800 918000

As per our assumptions of best case scenario, we can see the NPV is -13346362 taka, which is
2089661 taka more than the base case NPV. It means, than if the condition follows our
assumptions, there will be 2089661 taka less loss incurred from this investment. However, even
according to the best scenario, this investment will not be profitable.
On the other hand, if the situation deteriorates and follows our assumptions of worst case
scenario, then the NPV will be -16798724 taka, which means the investor has to face 16788724
taka loss which is 1362701 taka more loss than the current scenario.
13

Banani

Base Case
From the NPV calculation of Banani apartment in the NPV Calculation section, we’ve found
that the NPV on the investment of Banani apartment is -13387888 BDT. So, as per current
situation, similar to the Gulshan’s apartment, these apartment will also incur a huge loss if the
investor sells it after 5 years for 1.1times of the price and where the discount rate is 12%.

Best Case
We are assuming the rent revenue and occupancy of the apartment will increase according to
the following information,

Year 1 Year 2 Year 3 Year 4 Year 5

Base Best Base Best Base Best Base Best Base Best
Case Case Case case Case Case Case Case Case Case
Monthly Rent 70000 85000 73000 87000 76000 93000 80000 96000 85000 100000
Revenue (in
BDT)
Annual 8 11 9 12 10 12 10 12 11 12
Occupancy
(months)
Total Annual 28800 32400 30120 33600 31080 34800 31920 35760 33000 35760
Variable cost
(In BDT)

Here, as we are assuming the annual occupancy will be higher if the situation improves, the
variable costs are increasing to short extend every year. By multiplying the monthly rent revenue
of the best case with the annual occupancy we’ll find the annual rent revenue. With these
information, we’ve formed a pro forma statement which is given below,
14

Year 1 Year 2 Year 3 Year 4 Year 5

Rent Revenue 935000 1044000 1116000 1152000 1200000

Total Variable 32400 33600 34800 35760 35760

Cost
Total Fixed 36600 37800 39600 40920 42600
Cost
Depreciation 600000 600000 600000 600000 600000
EBIT 266000 372600 441600 475320 519960

Holding Tax 45000 45000 45000 45000 45000

Net Profit 221000 327600 396600 430320 474960

OCF 821000 927600 996600 1030320 1074960

From these data, we can calculate the NPV for the best case,

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-30000000 821000 927600 996600 1030320 1074960

Best Case
-3000000 -3000 33000000
-1300000

CFFA -34300000 821000 924600 996600 1030320 34074960

NPV (12,130,684.23) taka

The NPV as per our assumptions of the best possible case considering current situation is -
12130684 taka. It indicates that, if the investor invests in this property and sells it after 5 years
for 33000000 taka where the discount rate is 12%, s/he will be having 12130684 taka loss.
15

Worse Case

If the situation worsens, we are assuming the rent revenue and occupancy will decrease. In
addition to that, since the occupancy is decreased, the variable costs will also decrease according
to that.
Year 1 Year 2 Year 3 Year 4 Year 5
Base Worse Base Worse Base Worse Base Worse Base Worse
Case Case Case Case Case Case Case Case Case case
Monthly Rent 70000 60000 73000 65000 76000 67000 80000 70000 85000 76000
Revenue (in
BDT)
Annual 8 6 9 7 10 8 10 8 11 9
Occupancy
(months)
Total Annual 28800 27000 30120 27960 31080 29040 31920 30600 33000 31680
Variable cost
(In BDT)

Using given information, we’ve formed a pro forma statement for the worse case scenario-

Year 1 Year 2 Year 3 Year 4 Year 5

Rent Revenue 360000 455000 536000 560000 684000
Total Variable 27000 27960 29040 30600 31680
Cost
Total Fixed Cost 36600 37800 39600 40920 42600

Depreciation 600000 600000 600000 600000 600000

EBIT -303600 -210760 -132640 -111520 9720
Holding Tax 45000 45000 45000 45000 45000
Net Profit -348600 -255760 -177640 -156520 -35280
OCF 251400 344240 422360 443480 564720

With these statement, we can find out the NPV for a worse situation.
16

Year Year Year Year Year Year

0 1 2 3 4 5

Worse Case -30000000 251400 344240 422360 443480 564720

-3000000 -3000 33000000
-1300000

CFFA -34300000 251400 341240 422360 443480 33564720

NPV (14,175,510.68) taka

So, as per our calculations, we’ve found that the NPV of worse case is -14175510 taka. It
indicated that if the situation worsens, the investor might have to face 787623 taka more loss as
compared to the current base situation.

In summary,

Year Net Profit (in BDT) OCF (in BDT) NPV (in BDT)
Best Base Worse Best Base Worse Best Base Worse
1 221000 -150400 -348600 821000 449600 251400

2 327600 -55920 -255760 927600 544080 344240

3 396600 44320 -177640 996600 644320 422360 -12130684 -13387888 -14175511

4 430320 82160 -156520 1030320 682160 443480

5 474960 214400 -35280 1074960 814400 564720

This summary clearly shows that in no circumstances considering current market, this
investment will be profitable for the investor. If an investor buys this apartment and situation
improves a bit for which the rent and demand for such apartments increases, even in that case he
will have to face 12130684 taka loss if he sells the flat after 5 years for 1.1times price in presence
of a discount rate of 12%. However, in that case, the loss will be 1257204 taka less than the base
scenario.
On the other side, if the situation worsens and the demand for such apartment falls, as a result
of which the rent revenue and occupancy decreases, s/he will have to suffer 787623 taka more loss
on this investment.
17

Sensitivity Analysis
In sensitivity analysis, by changing one variable, we examine the effect on NPV.
Rent revenue usually increases due to the acquisition of flats most of the time. If the incidence
of corona virus increases in the future as in the case of India, then occupancy rate will be much
lower than today’s situation that’s why we are also counting 12% decrease in monthly rent in worst
case. As far our consumption variable change by one- rent revenue will not be able to change the
NPV scenario like negative to positive but effects with lesser negative NPV or Higher. So, in both
Best and worst cases NPV remains negative.

Sensitivity Analysis on Rent Revenue

Assuming monthly rent revenue increased 12% in the Best case and 12% decreased in worst
case from the Base case (Covid case).

Gulshan Apartment,
Sensitivity Analysis (Rent)
Year 1 Year 2 Year 3 Year 4 Year 5
Base Best Base Best Base Best Base Best Base Best
Case Case Case Case Case Case Case Case Case Case
Rent
10,00,000 11,20,000 11,70,000 13,10,400 13,20,000 14,78,400 13,50,000 15,12,000 15,07,000 16,87,840
Revenue
NPV
Base
Case -1,54,36,023
Best
Case -1,48,98,641

Sensitivity Analysis (Rent)

Year 1 Year 2 Year 3 Year 4 Year 5
Base Worse Base Worse Base Worse Base Worse Base Worse
Case Case Case Case Case Case Case Case Case Case
Rent
10,00,000 8,80,000 11,70,000 10,29,600 13,20,000 11,61,600 13,50,000 11,88,000 15,07,000 13,26,160
Revenue
NPV
Base
Case -1,54,36,023
Worse
Case -1,59,73,405
18

In Summary,
Year Net Profit (in BDT) OCF (in BDT) NPV (in BDT)
Best Base Worse Best Base Worse Best Base Worse
1 3,00,400 1,80,400 60,400 9,90,400 8,70,400 7,50,400

2 4,86,000 3,45,600 2,05,200 11,76,000 10,35,600 8,95,200

3 6,49,800 4,91,400 3,33,000 13,39,800 11,81,400 10,23,000 -1,48,98,641 -1,54,36,023 -1,59,73,405

4 6,81,000 5,19,000 3,57,000 13,71,000 12,09,000 10,47,000

5 8,49,640 6,68,800 4,87,960 15,39,640 13,58,800 11,77,960

Banani Apartment,
Sensitivity Analysis (Rent)
Year 1 Year 2 Year 3 Year 4 Year 5
Base Best Base Best Base Best Base Best Base Best
Case Case Case Case Case Case Case Case Case Case
Rent 5,60,000 6,27,200 6,57,000 7,35,840 7,60,000 8,51,200 8,00,000 8,96,000 9,35,000 10,47,200

Revenue
NPV
-1,33,87,888
Base
Case
-1,30,75,448
Best
Case

Sensitivity Analysis (Rent)

Year 1 Year 2 Year 3 Year 4 Year 5
Base Worse Base Worse Base Worse Base Worse Base Worse
Case Case Case Case Case Case Case Case Case Case

4,92,800 5,78,160 6,68,800 7,04,000 8,22,800

5,60,000 6,57,000 7,60,000 8,00,000 9,35,000
Rent
Revenue
NPV
-1,33,87,888
Base
Case
Worse -1,37,00,328
Case
19

In summary,
Year Net Profit (in BDT) OCF (in BDT) NPV (in BDT)
Best Base Worse Best Base Worse Best Base Worse
1 -83200 -150400 -217600 516800 449600 382400

2 22920 -55920 -134760 622920 544080 465240 -1,30,75,448 -1,33,87,888 -1,37,00,328

3 135520 44320 -46880 735520 644320 553120

4 178160 82160 -13840 778160 682160 586160

5 326600 214400 102200 926600 814400 702200

Explanation of sensitivity Analysis (Rent Revenue):

We focused on the variable of rent revenue and from the three cases Base case (Covid
case), Best case, worst case it changes in two cases Best case and worst case.
House rent increases with the increasing price of water supply, gas, and Electricity; also,
inflation rate matters to increase rent; however, rent decreases when the Occupancy rate is
low.
The base case (Covid case) remains the same with negative NPV.
In the Best case, rent revenue increases by 5,37,382.27 taka from the Base case
NPV(Gulshan) and 3,12,440.15 taka from the Base case NPV(Banani), but NPV remains
Negative for both areas.
In the Worst case, rent revenue decreased by 5,37,382.27 taka from the base NPV and
3,12,440.15 taka from the base case NPV(Banani), but NPV remains Negative for both
areas.
So, In the Best case with the increase of revenue, it causes less negative NPV positively
related in both Area's and decreases of revenue causes higher negative NPV, which is
Negatively related for both Ares's.
20

Sensitivity Analysis on maintenance Cost

Assuming Maintenance cost increased 20% in the Best case and 20% decreased in the worst case
from the Base case (Covid case).

Gulshan Apartment:
Sensitivity Analysis (Maintenance Cost)
Year 1 Year 2 Year 3 Year 4 Year 5
Base Best Base Best Base Best Base Best Base Best
Case Case Case Case Case Case Case Case Case Case
Maintenance 18000 14400 18000 14400 19200 15360 19800 15840 21600 17280

Cost
NPV
Base Case -1,54,36,023
-1,54,22,238
Best Case

Sensitivity Analysis (Maintenance Cost))

Year 1 Year 2 Year 3 Year 4 Year 5
Base Worse Base Worse Base Worse Base Worse Base Worse
Case Case Case Case Case Case Case Case Case Case
Rent 18000 21600 18000 21600 19200 23040 19800 23760 21600 25920

Revenue
NPV
Base Case -1,54,36,023
-1,54,49,808

Worse Case

In Summary,
Year Net Profit (in BDT) OCF (in BDT) NPV (in BDT)

Best Base Worse Best Base Worse Best Base Worse

1 184000 1,80,400 176800 8,74,000 8,70,400 866800

2 349200 3,45,600 342000 10,39,200 10,35,600 1032000

3 495240 4,91,400 487560 11,85,240 11,81,400 1177560 -1,54,22,238 -1,54,36,023 -1,54,49,808

4 522960 5,19,000 515040 12,12,960 12,09,000 1205040

5 673120 6,68,800 664480 13,63,120 13,58,800 1354480

21

Banani Apartment:
Sensitivity Analysis (Maintenance cost)
Year 1 Year 2 Year 3 Year 4 Year 5
Base Best Base Best Base Best Base Best Base Best
Case Case Case Case Case Case Case Case Case Case
Maintenance 12000 9600 12000 10080 13200 10560 13920 11136 14400 11520
cost
NPV
-1,33,87,888

Base Case
-1,33,75,453
Best Case

Sensitivity Analysis (Maintenance cost)

Year 1 Year 2 Year 3 Year 4 Year 5
Base Worse Base Worse Base Worse Base Worse Base Worse
Case Case Case Case Case Case Case Case Case Case
Maintenance 12000 14400 12000 15120 13200 15840 13920 16704 14400 17280
cost
NPV
-1,33,87,888

Base Case
-1,33,97,322
Worse Case

Year Net Profit (in BDT) OCF (in BDT) NPV (in BDT)
Best Base Worse Best Base Worse Best Base Worse
1 -148000 -150400 -152800 452000 449600 447200

2 -53400 -55920 -58440 546600 544080 541560 -1,33,75,453 -1,33,87,888 -1,33,97,322

3 46960 44320 41680 646960 644320 641680

4 84944 82160 79376 684944 682160 679376

5 217280 214400 211520 817280 814400 811520

22

Explanation of sensitivity Analysis (Maintenance cost):

We focused on the variable of Maintenance cost and from the three cases Base case (Covid
case), Best case, worst case it changes in two cases Best case and worst case.
Maintenance increases with the inflation rate of money also higher cost of cleaning rate for
common areas, energy and Security charges Whereas it decreases when the Occupancy
rate high, because the total cost will be divided by higher occupancy rate of total building.
The base case (Covid case) remains the same with negative NPV.
In the Best case, maintenance decreases by 13,785.36 takas from the Base case NPV
(Gulshan) and 9,434.35 taka from the Base case NPV (Banani), but NPV remains Negative
for both areas.
In the Worst case, Maintenance cost increases by 13,785.35 takas from the base NPV and
9,434.36 takas from the base case NPV (Banani), but NPV remains Negative for both areas.
So, In the Best case with the decrease of maintenance cost, it causes lower negative NPV
positively related in both Areas, and decreases of maintenance cause higher negative NPV,
which is p related for both Ares’s but affects Gulshan Ares most though maintained cost
have minimal effects on NPV.
23

Risk Analysis
There are several risks associated with commercial real estate investing that must be weighed
against the investment's anticipated return. According to this report following risks can play a vital
part in changing the whole NPV-

1. Market Risk - The economy, interest rates, inflation, and other business factors all trigger
ups and downs in all markets. Market shocks cannot be avoided, but investors can protect
themselves with a diversified portfolio and a plan focused on general market conditions.
Like when the inflation rate will be high the rent will increase in Gulshan & Banani both
areas. Even the whole economy plays a very important role in fluctuating the prices of both
the areas in long-term & short-term. Through diligent planning, due diligence, and tracking
of owner real estate assets, anyone can reduce the risk of being caught on the wrong side
of a trend.
2. Risk of Liquidity- Before purchasing, it is essential to understand the market's depth and
how one can exit the investment. If the possessor owns stocks, selling them when he needs
money or just wants to cash out is easy. That isn't always the case when it comes to real
estate investments. If he needs to sell his property quickly, which is 5 years in this case, he
can sell below market value or at a loss due to a lack of liquidity. In a market like Gulshan
or Banani, an investor can expect hundreds of buyers to turn up at the bidding table,
regardless of market conditions.
3. Cash Flow Problems-A real estate investment's cash flow is the money left over after all
expenses, taxes, and mortgage payments have been paid. When the money coming in is
less than the money going out, the owner has negative cash flow, which means the owner
loses money. In case of the rents of Gulshan & Banani the same thing occurred. For the
following reason the cash flow is negative-
 High Vacancies because of current COVID situation
 The depreciation is in 5years.
 High discount rate.
 Initial investment is high.
 Rent isn't high enough.

4. High Vacancy Risk- In real estate investing, there is always the possibility of a high vacancy
rate. Currently in this COVID situation. Everyone is scared of getting infected. So no one
is willing to go out let alone renting or shifting to new house. Many people are leaving
their houses as they cannot afford to leave in the areas. However, many of the landlords
have reduced their rents because of the current situations still they are not been able to
reduce the vacancy rate. No matter if the
24

.
4. Structural Risk- Underestimating the costs of repairs and maintenance is a certain way to
lose money on an investment. For commercial buildings, structural repairs or mold or
asbestos remediation may potentially cost a lot of money. Since senior debt is paid first
and has top priority in the event of liquidation, it gives a lender a structural advantage over
subordinated debt. In the above case it can be seen that even if the elite areas like Gulshan
& Banani the owners have to pay a high rate of maintenances cost even if the flat is empty.
Since equity is the last payoff in the capital system, it carries the most significant risk.
5. Risk Leverage - The higher the debt on an investment, the riskier it is, and the higher the
return investors can expect. When a project's loans are stressed – usually when the return
on assets isn't enough to cover interest payments – investors may lose much money quickly.
Like if the investor wants to do this real estate business he has to lend a good amount of
money. But even if the investor take that debt he won’t be able to generate enough revenue.
So from both end he is not being able to generate enough revenue and he has a high risk of
leverage. Investors must recognize that returns should be produced primarily from the
performance of the real estate, not from excessive leverage.
Property investors often underestimate the importance of quantifying leverage, resulting in
over-leveraged investments. Investors can inquire about the amount of leverage used to
capitalize an asset to make sure they are getting a return that is proportional to the danger.

6. Risk at the asset level- Any investment in an asset class bears certain risks. Since there is
still demand for apartments in real estate, multifamily real estate is considered low-risk and
yields lower returns in both good and poor economies. With their short, seasonal stays and
dependence on business and tourism travel, hotels pose much more danger than either
apartments or offices, as they are less resilient to customer demand than shopping malls.
Since the start of COVID areas like Gulshan & Banani which are full of hotels &
restaurants are generating very low revenue. Many of them got shut down because of not
having enough customers.

The bottom line is that real estate has long been regarded as a sound investment, and smart
investors will benefit from passive income, high returns, tax benefits, diversification, and the
potential to create wealth. Real estate investing, like many other forms of investments, can be
risky. But because of the COVID virus every business is facing a very difficult time. Many
businesses have stopped their operations.
25

Recommendation

 First of all, from the NPV calculation, we can see that NPV for both the location is negative.
We cannot accept any investments where NPV<0. So, here both Gulshan & Banani is a
bad investment.
 Secondly, maximum values in this report are assumed. Like maybe the discount rate is not
exact or even close. The maintenance costs, fixed costs, etc., can also be different. So there
is a high possibility that the results might differ in real life.
 Finally, different kinds of risks can make a significant difference. If the second phase of
COVID comes to the country, the inflation rate will be high. That rate will affect the short
run, and the whole economy will face the consequences.

Conclusion
In conclusion, we have considered two of the most premium areas in Dhaka to see if an investor
should invest in the real estate business in different cases. For both areas, the NPV is negative.
Even after changing other variables in scenario & sensitivity analysis, the NPV is still negative.
Moreover, many risk factors can quickly decrease the NPV more. So, it can be said that because
of having a 5 year of depreciation, lack of demand & high discount rate, no matter how much
change is made in other variables, the NPV won't be positive. Therefore Gulshan & Banani both
areas are not profitable to invest in.
26

Appendix

Contribution:

Meher Negar Saki Introduction- NPV calculation

Syed Akhlakur Rahman Scenario Analysis

Md. Faisal Khan Sensitivity Analysis

Anika Hossain Risk analysis-conclusion

27

Ref: https://bikroy.com/en/ad/2500sft-7th-floor-luxurious-apartment-for-sellbanani-for-sale-dhaka
28

Ref: https://bikroy.com/en/ad/2500sft-ready-flat-sale-in-gulsshan-2-for-sale-dhaka
29

Ref: https://bikroy.com/en/ad/fully-furnished-apartment-rent-gulshan-2-for-rent-dhaka-146
30

Ref: https://bikroy.com/en/ad/2500-sft-apartment-rent-banani-for-rent-dhaka-1