A Research On Cash Flow Risk Management In Real Estates Under The Background Of Micro-controlling And Adjusting Policies

Real estate industry belongs to capital-intensive enterprises industry, and thedevelopment of each real estate project need the injection of large sum of funds. Whenthere is funds shortage, the fracture of capital chain may put the estate item into adilemma, and may even lead to the bankruptcy of the target business. Considering suchdisastrous consequences, an increasing number of businesses begin to pay closeattention to the management of capital funds and funds flow and set early responses tothe proper cash flow crisis in the coming future. In China, government policies in theproperty sector have far-reaching influence on the existence and further-development ofreal estate businesses since enterprises in this industry are closely connected with andsubjected to the regulation and control policy of macro-economic due to the specialnational conditions. In recent years, our government has intensified the adjusting andcontrolling endeavors towards property sector with frequent issuance of relevantdocuments and papers which indicate distinctive policy tone：stimulating policies wereintroduced to the recession economy and restrictive policies were adopted when China’smacro-economic was overheated. Under the background of a new round of real estateregulation, the unfortunate Jinxing Real Estate became the first bankrupt propertydeveloper followed by Guangdeye Real Estate and Ruida Real Estate in Hangzhou, andLvcheng Real estate company, one of the leading developers in property industry,confronting restrictive industry adjusting and controlling policies, was loaded withfunds liquidity danger as well. In this way, management of capital funds and funds flowunder different, or contrary to some extent, real estate regulation policies become a mostpressing problem the management team needs to conquer in practice.In available literature, few scholars conducted researches on cash flow riskmanagement on the basis of industry macro-control regulation, and the papers in thisarea are very limited. This paper tries to fill the gap. In this paper we firstly review thedeveloping history of property industry and the regulation policies related to differentdeveloping stage, then, an analysis is later carried out on the basic features of cash flowand cash flow risks of property enterprises, where we find cash flows, such as operatingcash flows, moving slowly, volatile extremely and is easily susceptible to policychanges.etc. After that, This paper classify time span selected into stages withdistinctive regulation policies and then compare and analyze general cash flow conditions, as well as changes in cash flow structure and solvency. Finally, this paperperforms a case study on lvcheng Real Estate Company, discussing the reason of itscash flow crisis and the adopted responses by management to cope with the liquiditydanger and the relating influence.The general conclusion we may draw from the above-mentioned analysis and studyis as follows: first, there do exist some cash flow Risk control measures and endeavoroffsetting adverse implication of macro-control policy changes, and the implication ofwhich seems to be more obvious in stagnant years; second, major business of propertyenterprises is always lacking the ability to fend off the political risk and therefore isexpected to be enhanced. As operating activity is easily susceptible to policy changes,the failure of major business to generate cash flow makes operating activity a lessimportant rule in contributing to total cash flow of the business. Third, financingactivities normally have a dominant position in the business in proving needed funds inboth stimulating years and restrictive years. Also, real estate industry show atendentious characteristic in financing arrangement，that is: debt financing is preferredand current liability percentage is relatively high, leading to potential cash flow crisis.As cash flow from operation is closely connected with industry micro-controlpolicies and operating cash flow decrease dramatically in restrictive years, real estatecompanies shall improve the risk management through alteration of marketing modeand way of pricing. In addition, financing is a key factor to ensure the smoothcirculation of total cash flow. In addition, Compared to stimulating years, corporatefinancing is harder in restrictive years.The corporate can promote enterprise sustainabledevelopment through reserving funds and optimize financing structure.