Measuring Economic Value Added In Real Estate Sector In Belarus

In the presented paper we make a pioneering attempt to calculate economic value aded (EVA) for Belarus at the industry level using aggregate indicators according to the common business methodology. For this we generally assume that economic value is created by investment in excess return compared to its cost. To calculate EVA we engage primary data such as net book profit, investment and cost of capital aggregated for each sector in Belarus defined in Industrial Classification System only recently built in Belarus and internationally comparable with NACE industry classification system. We adopt EVA indicator to Belarusian general economic conditions and specifics of available aggregate sector data by adjusting return on investment and cost of capital. The findings of our calculations present the fact that four sectors in Belarusian economy create no economic value and have negative EVA indicator: education, health, community, social and personal services, and, suprisingly, real estate activities. Such negative EVA indicates that either cost of capital for an industry is higher than return on capital (the firms are currently earing less than expected giving the their cost cost of capital) or capital invested does not create enough of value for specific investment projects. The first three mentioned sectors have clear Ñsocialì charakter in Belarus by recieving substantial governmental support and subsidies. We can state that these sectors and real estate operate Ñat the costì of other industries. The most striking finding of our estimations is that the lowest EVA indicator among all Belarusian industries shows the division called ÑReal estate acvtivitiesì. This can be explained by having a close look at the sectorís further structure. According to NACE ÑReal estate activitiesì behind direct services of selling estate and real estate agencies includes also management of estate on a fee or contract basis. In Belarus the latter are simply maintanace services for housholds which is traditionally low-profitable and government-subsided. A huge governmental straight involvment in construction sector production, providing of preferential rates for housing construction credits and other economic peculiarities in Belarus have led to a deplorable result that firms from a should-be profitable NACE class ÑDevelopment and selling of real estateî destroys economic value. We strongly believe that EVA as a qualitative indicator of investments among firms in different sectors including real estate better illustrates potential of economic developement of Belarusian business unlike gross macroeconomic indicators of output etc. EVA indicator also provides us with more objective information about current situation at the market when no stock exchange information is available.