A Japanese-Adapted Technique for Evaluating International Real Estate Investments
本文介绍了日本企业常用的估算利息费用法（IIC）来评估房地产投资项目，并与美国等国的折现现金流模型（DCF）进行对比，通过案例说明两种方法在识别可行项目上同样重要，帮助国际投资者理解日本市场的评估技术。
Contrary to the established practice in the United States and Western Europe, a majority of Japanese multinational corporations haven't been utilizing the discounted cash flow (DCF) model in investment valuation. Alternatively, many Japanese firms use an accounting method that captures the cost of capital through the imputed interest charges to determine the feasibility of investment projects. This article helps prospective international investors and educators who are interested in Japan's real estate markets understand the appraising technique being used in Japan. The article discusses the Japanese approach and presents a case example to illustrate the concept. Although the Japanese approach and the DCF techniques are intrinsically different, illustrative tables will show that both are equally important in identifying feasible investment projects. In their appraising real assets in Japan, international real estate investors should therefore be receptive to the Japanese approach. INTRODUCTION For many decades, techniques based on the discounted cash flow model (DCF) have been used in appraising financial and real assets. These techniques include net present value (NPV), internal rate of return (IRR), modified internal rate of return (IRR*), and adjusted discounted payback period (ADPBP). The publicized merit of the DCF model emanates from its capturing both the time value and the forecasted volatility of cash flows. Volatility of asset prices is accounted for by discounting the asset's cash flows by a proper risk-adjusted discount rate. The discount rate is a function of the rates of return on alternative investments, inflation risk, default risk, liquidity risk and maturity risk. In an international context, the discount rate also captures the foreign exchange risk, political risk, and international tax risk. Many real estate investment researchers including Fisher and Martin (1991), Messner, Schreiber, Lyon and Ward (1982), and Pyhrr, Cooper, Wofford, Kapplin and Lapides (1989) applied the popular DCF model to valuation of domestic real estate properties. In international real estate application, Green and Essayyad (1990) proposed and applied a modified real estate investment model that is based on the DCF model and incorporated the impact of foreign exchange risk, political risk and international tax risk in the valuation of foreign real estate development opportunities. Although the advantages of the DCF-based techniques are well recognized in the United States and other Western nations, many foreign countries use them infrequently in real or financial asset valuation. The reason is that the valuation of real estate in some foreign nations is based on purely accounting methods or based on direct sales comparison appraisals. Japan stands out as an example of a nation that has not been extensively utilizing the DCF-based investment valuation models. Rather, many Japanese firms utilize the imputed interest charge approach to determine the feasibility of investment projects. The objective of this article is to present the Japanese approach of investment valuation. For comparative purposes, the same case example presented by Essayyad and Green (1990) will be used to illustrate the Japanese approach. The remainder of the paper is organized as follows. Section II discusses the shortcomings of the DCF model and highlights the reasons for the adoption of the imputed interest charge (IIC) method used in Japan. Based on Hodder's paper (1986), section III introduces the IIC approach, presents and discusses a numerical example, while section IV presents some conclusions. SHORTCOMINGS OF THE DISCOUNTED CASH FLOW MODELS Historically, financial scholars have noted many weaknesses in the use of discounted cash flow models. Included in the stated weaknesses is the assumption that all investments have a single unique yield, while in reality an investment may have multiple rates of return. …