Wk10_Mahfoodha_Best Selection of Investment in Properties using Noncompensatory Models


 

  1. Problem Definition

I have recently decided to invest in property.  The property market in Oman is currently in a stable condition which is an indication of a good time to invest in properties. However in order to decide on what type of property to buy, an analysis on the best selection is to be conducted. This is hence the topic of this blog

  1. Development of Feasible Alternatives

The budget of investment allows for only the following options:

  1. Town House
  2. Apartment
  3. Land

 

3 Development of the Outcome for Alternative 

The following are the criteria on which the decision will be based on:

  1. Price
  2. Location
  3. Demand
  4. Rent price
  1. Selection of Criteria.

There are several models in the industry that could assist in deciding the best selection. For the purpose of this blog the following will be used:

  • Grid Analysis
  • Non compensatory Models

In this blog the non-compensatory models will be further explored to drive a the best selection

 

Attribute Alternative
 Town House 3 bedrooms Apartment 2 bedrooms Land 600 m2+ Build Town houses ( 2)
Price 200,000 OMR 140,000 OMR 60,000+ 80,000 OMR140,000 OMR
Location Muscat- Al Hail ( The wave compound) Muscat- Al Hail ( The wave compound) Muscat- Al Hail
Rental per month / Resale value 1200 OMR 800 OMR 800 OMR eachTotal 1600 OMR

 

Market Demand Average  HIGH HIGH
Best Value Worst Value

 

There are four non-compensatory models to be tested as following:

Dominance
Attribute Paired Comparison
  1. House Vs. Apartment
  2. House Vs. Land
Land Vs. Apartment Land Vs. Town House
Price Worse Worse Equal Better
Location Equal Better Worse Worse
Rental Price per Month Better Worse Better Better
Market demand Worse Worse Better Better
Dominance No No Yes Yes

 

Satisfaction 
Attribute Feasible Ranges of Satisfactions
Min. Acceptable value Max Acceptable Value Unacceptable Value
Price 200,000
Location Muscat- Al Hail Muscat None
Rental Price per month 700 OMR 1500  OMR None
Market demand Better None

 

 

Disjunctive Resolution
  1. Results of Paired Comparison
Location> price Location is more important than price
Market Demand > Price Market demand is more important than price
Rental Price >Price Rental Price is more important than Price
Market demand > Location Market demand is more important than location
Location > Rental price location is more important than Rental price
Market Demand> rental price Market demand is more important than rental price
  1. Attribute
Price 0
Location 2
Rental Price per month 1
Market demand 3

 

Lexicography
Attribute Rank Alternative Ranking
Price   0 Land = Apartment >  Town House
Location 2 Apartment=Town House >land
Rental Price per month  1 Land >Town House >Apartment
Market demand 3 Land= Apartment >town House

 

 

 

  1. Analysis and Comparison of the Alternative.
  2. Dominance

This method is useful for eliminating one of inferior alternatives, which is this case the Town House. Also it could illustrate Land is more dominant

  1. Satisficing

The information provided from this method is not sufficient enough for decision-making purpose as the alternatives are acceptable.

  1. Disjunctive Resolution

Based on the evaluation, best attribute achieved is equally the land and the Apartment.

  1. Lexicography

Indicates the best selection is the land.

  1. Selection of the Preferred Alternative.

By applying these above 4 models,  investing in Land is the selected alternative.

  1. Performance Monitoring and the Post Evaluation of Result.

Dominance, Disjunctive resoltion as well lexicography methods has brought Land as the best alternative. As evaluated, it relies on comparing the attributes of each alternative to the standard.

 

References:

  1. Husni,Shinta. (2014). W8_Shinta_ Applying Noncompensatory Models for Best Selection of Investment in House/Apartment/Home Store Retrieved 24 August 2014 from: http://kristalaace2014.wordpress.com/2014/05/06/w8_shinta_-applying-noncompensatory-models-for-best-selection-of-investment-in-houseapartmenthome-store/#more-1358

 

  1. Grid Analysis (2011). Retrieved from: http://depts.washington.edu/oei/resources/toolsTemplates/grid_analysis.pdf
  2. Decission Matrix Analysis. Retrieved from: http://www.mindtools.com/pages/article/newTED_03.htm
  3. Noncompensatory and Compensatory Models( Nov 2010), [Online Video] retrieved on 24 August 2014 from http://www.youtube.com/watch?v=CKM9u65kZHg
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One thought on “Wk10_Mahfoodha_Best Selection of Investment in Properties using Noncompensatory Models

  1. While not WRONG to be using multi-attribute decision making when looking at investment opportunities, it is somewhat unusual, at least the way you applied it…..

    Normally, you would use MADM approach when evaluating similar properties in different neighborhoods and then you would grade the neighborhoods based on schools, crime, local leadership etc…… But to use MADM the way you did is pretty unusual given you could have chosen any one of a number of financial analysis tools- NPV, IRR, ERR, Break Even Analysis.

    Bottom line- I won’t reject it but you could have/should have done a better job of thinking through WHICH tool/technique is most appropriate and MADM wasn’t your best choice.

    BR,
    Dr. PDG, Muscat

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