Risk Management Of Real Estate Development Projects In China By Sino-Korean Companies

The number of overseas companies, especially Korean companies, which enter tothe Chinese real estate market has been increasing recently. However, since high returnsin Chinese real estate involve considerable risk, they have many difficulties. There aremany studies on risk management of real estate investment project, but only a fewstudies concerning risk management on the real estate project in China by Sino-Koreancompanies exists. This paper explores risk management of the joint project from thepoint of the view of Korean companies by investigating the joint project in ThreeNortheastern Provinces.This research identifies and classifies risks under the joint project through thesurvey of existing literatures, actual cases of success and failure, and expert interviews.Then it provides a risk list for the Chinese real estate joint project based on the standardcriteria for risk classification.We conduct surveys targeting experts who have experienced the real estatedevelopment projects in Three Northeastern Provinces. Based on the results, the impact,the occurrence frequency, and the degree of risk in the list are evaluated. We found thatthere are3main factors, i.e., design and consutruction schedule delay, lack oflocalization centric marketing, and complicated procedures of Chinese government’sproject approval. Furthermore, in order to discriminate major risks which greatlyinfluence on project benefits from the list, we conduct cost analysis of a multipurposefacility project which is an actual case developed by Chinese and Korean companiesand evaluate sensitivities of the major risks. The most sensitive3factors are identified,i.e., design and consutruction schedule delay, defects in design, and low construnctionproductivity.The qualitative analysis of the degree of risk and the quantitative analysis ofsensitivity are compared. Finally we obtain the most important9risks, i.e., design andconsutruction schedule delay, defects in design, low construnction productivity,insufficient consideration for conditions such as traffic and competition facilities, andetc.We suggest appropriate measures against9major risks through the literature study,expert interview, and case analysis. For example, for the risk of insufficient consideration for conditions such as traffic and competition facilities, the propermeasures include establishment of an adaptive system for land planning and policychanges; re-consideration of land tender after demolishing buildings. In case of designand consutruction schedule delay, response measures are clarifying responsibilities andindemnity of the construction company on the contract; adjustment of constructionpayment according to the construction progress.In conclusion, this study not only improves risk management for the Koreancompanies participating in the Chinese real estate development but also providespractical guidance for any other overseas companies and domestic companies. Moreover,it offers useful references for Chinese local govermnet promoting foreign investment...