Modeling financial risk : Applying Monte-Carlo simulation to apartment project of low-income people

Sammanfattning: While the market of high-class apartment in Vietnam remains rather „quiet‟, the medium and low-price apartment segments are attracting investors‟ interest and becoming scarce because the demand is growing faster than the supply (VietRees,2009). Moreover, apartments for low-income people draw the attention of more buyers due to reasonable price matching their affordability.Investors in Vietnam have begun to re-consider the market and found out a great demand for accommodation from low-income population. Most of them are from different provinces in Ho Chi Minh City (HCMC) so they don‟t have proper houses. According to a recent statistics, more than 80% of HCMC citizens in the age range from 18 to 35 have to live with their family; more than 90% of the immigrated young people have to live in rented houses; more than 30% of the total number of families have to live in houses of less than 36m2; thousands of families have to live in houses below minimum standards (Xay Dung, 2009). Most of the rest have to rent houses with very poor living conditions. Especially, the majority of Vietnam populations who are young, dynamic and usually rush to big cities for jobs having high demand to own an apartment even when they are still single. Hence, we can see that the housing market for low-income earners is full of potential and quite attractive.~ ii ~By modeling main risk factors in Monte-Carlo simulation on financial performance of the project in HCMC, the findings demonstrate that the period of loan and apartment selling price (positive risk factors) make financial performance of the project increase faster than other risk factors (including inflation rate) that decrease the profit of the project. Besides policies and flexible financial systems, risk management should be implemented regularly to control these risk factors from the beginning to the end of the project. Therefore, I could support the entrepreneurs to plan economic strategy specifically and effectively such as recommending how to make both state-owned and private projects successful and create profits for investors at an acceptable degree of risks as well as how to bring accommodation to low-income people with reasonable prices.The project will provide accommodations for approximately 2000 people. This number may not be large enough to create a significant social impact. However, if this business model and my research bring to good result, making benefits for its inhabitants and profits for the investors, it can be multiplied in larger scale and scope, hence creating more practical socio-economic benefits. It can be said that this project is the seed, laying premises for bigger project afterwards.For these reasons, I hope that this study is useful not only to investors, researchers, and low-income people in Vietnam but also to those in Sweden.