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Inflation & The Urbanization Factor

inputdescriptionhelp#importancefrequency
MV[6]Rate/Year to Increase Sales Price or Revenues COSTMV[ 4] 610  2
MV[7]Rate/Year to Increase Costs (& Revenues if 0=) COSTMV[ 5] 610  2
MV[8]Months to Forego Cost Increase (effects MV[6],MV[7], COSTMV[ 6] 610  2
MV[52]Account # to exclude from escalation (see ) 610  1
COSTMV[4]Rate/Year to Increase Sales Price or Revenues 610  
COSTMV[5]Rate/Year to Increase Costs (& Revenues if 0=) 610  
COSTMV[6]Months to Forego Cost Increase (effects MV[6],MV[7], not P 610  

Inflation affects real estate projects in very important ways. Firstly, it may cause borrowing requirements to be greater than anticipated as it increases costs earlier than increases in sales revenues can be used to offset increased costs. Secondly, it may increase profits because costs are incurred earlier than revenues and inflation therefore has a longer time to affect revenues.

The urbanization factor is a term used to describe the fact that as development proceeds and more facilities and services are available both in the project and in the surrounding area people and businesses are prepared to pay higher prices or rents for space in the project.

MV[6] is the annual rate to increase land sales price to account both for the urbanization factor (if it is to be assumed) and for inflation (if the model is intended to include inflation).

MV[7] is the annual rate to increase costs and expenses which are entered as fixed amounts (rather than as percentages) to reflect inflation.

MV[8] is used to delay the inflation factor. It is the number of periods in the beginning of the model where the inflation factor should not be imposed.

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