Measurement And Control Studies Of Real Estates Credit Risks In China

In our national economy real estate is a basic industry and serves as an important constituent part that may not be neglected. The development of real estate industry has been playing a very important role in optimizing the adjustment of industry framework, improving social stability and economic development. Being accompanied by financial industry the rapid development of real estate industry benefits from the strong support of the financial industry. Although there have been different means of financing for real estate companies, the loans from bank must be an all-important financing source, which have promoted the healthy development of the whole real estate industry and played an active role in China economy. With the development of real estate industry the credit loaning for real estate industry in China has developed very fast and also become the important field in which the commercial banks have been competing with each other for giving loans. At present the credit loaning framework in China real estate industry is reasonable on the whole and the quality of credit asset is also in good condition, but both because of half-baked system of China real estate market and the frequent controls on real estate industry from the government the commercial banks will undertake the risks from the finance of real estate companies. So Chinese bank industry has to learn the experiences and lessons on the management of credit risk suffered by the representative countries such as Japan, USA during their course of real estate industry development, especially focusing on the damages derived from the US subprime crisis burst out in 2007 on the world economy and Chinese bank industry. It is also necessary to think about seriously the shortcomings of the credit risk of China real estate industry.Influenced by the fluctuation of the macro economy cycle, it is inevitable for the development of real estate industry to be amid the changes of the cycle. The economy waved each time will always be accompanied by the presence of credit cycle. The most important driving factor of real estate cycle is tightly related to the economic growth rate, so called economic cycle. The sale price and rent in the real estate market will give the price signals of the media demand of the real estate as well as the demand of the construction development and real estate credit. The sale price of real estate decides the evaluating price and accounting liquidity ratio of the credit mortgage of real estate. At the same time the price effect of real estate mortgage would influence the credit effect of the banks. The increasing price of the real estate would create the expectation of earning rate going up so as to underestimate the credit risk of real estate. The "disastrous short-view" of real estate credit results from the strong support from the financial industry to the development of real estate credit operation that makes the real estate credit over-concentrated, so that the risk of real estate cycle will be increased. In addition the regional differentiation of real estate credit will be formed by the unmoveable and the local consumption of the real estate products as well as the apparently different earning among the different regions. So the risk of real estate credit of the different region will have different representation and their risk degrees are also not the same.As for as the single commercial bank is concerned, it should fully consider the hidden, lagged-behind and long-term characteristics of the real estate credit risk, paying special attention to the risk of real estate credit. In terms of the different characteristics between the credit of real estate companies and that of retail, the commercial bank should checkup strictly the income conditions of the borrower, the source of the returning money, the credit-standing of the past and the use of the loan. By all means mentioned above the commercial bank can at last enhance its measuring and hedging ability of the unsystematic risk of the real estate credit.The measuring tools and hedging methods for real estate credit risk of Chinese commercial banks have been somewhat backward. The measuring system of real estate credit risk has not formed yet, which adapts well to the demand of the modern commercial bank system and maintains sustainable development of the credit operations. During the time of the synthetical reformation Chinese commercial banks must realize that the rapidly increasing price of houses would cover large numbers of risks, think much of the risks derived from the adjustment of the real estate cycle, especially the risks of real estate company's credit-standing, of operation and policy as well as the systematic risk taking place unexpectively. Chinese commercial banks also need to promote prudently the innovation of financial tools, be very strict with the credit standards and demands, enhance the management of the credit capital, improve the construction of the inner-controlling systems and increase gradually the ability of hedging risks. The second-class market for real estate financing is being built so slowly that commercial banks are short of the tools of risk distribution and transferring, they are difficult to transfer the loan on mortgage into securities so as to make the assets liquid, this kind of conditions will concentrate large numbers of the risks upon the commercial banks. Therefore, in terms of the factors that create the risk of real estate credit, different kinds of risk measuring and hedging methods should be carried out so that we can maintain the healthy and sustainable development of real estate credit in China.