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Application and Advantage of Asset Securitization in Real Estate Industry  

2009-02-22 16:15:26|  分类: 部分翻译作品回顾 |  标签: |举报 |字号 订阅

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Abstract: In recent years, asset securitization has attracted more and more attention and many practical explorations have been developed in our country. A movable, resegmentation of real estate using function of security market will realize a popular real estate asset, specialization operation and risk diversification; provide enough capital for the market and promote the industry and financial industry to develop fast. Its a financial renovation, and an important part of world economic democratization movement more.

Key Words: Real Estate; Asset Securitization; Competition

Entering a new century, the real estate market of our country has stepped into an era of “Asset is King”. So, traditional financing system of real estate enterprises such as bank loan, own fund and sale cash have not meet requirements of new era. It is an essential trend to realize the combination of industrial asset and financial asset with the help of asset market. Just in this voice, real estate securitization come into China and become a light spot in real estate financial market. Its soul lies that to cut up value of real estate with much value, long cycle and immobile location with valued securities. Thus, it could efficiently solve financing difficulty of real estate enterprises, also make small and medium-sized investors share interests of real estate investment and realize two aspects of real estate investment and consumption.

1. Concepts of Asset Securitization and Real Estate Securitization

Asset Securitization is to an act, making asset lacking in liquid to a security, which could be bought and sold freely in financial market. It fluids the asset and is a direct financing method to issue securities and collect capital in capital market and monetary market. [1]

Real estate securitization is to turn low fluid and non-security styled real estate investment into a financial transaction process of security asset in capital market. Through the process, property rights relation between investors and subject matter of real estate investment will change into two styles of stock rights and creditors rights of valued securities. It mainly includes two styles. Those are real estate mortgage loan securitization and real estate investment rights and benefits securitization. The later one is commercial real estate investment securitization.

2. Characters and Nature of Real Estate Securitization

Virtually, real estate securitization is a kind of right allocation for different investors for getting investment profit. Its concrete styles may include stock, bond, intrust fund and earning vouch etc. Because real estate is special and its financing method is single, its securitization is turn investors possession right and usufruct into creditors rights and interest. Virtually, it is an extension of creditors rights. Real estate securitization embodies a capital income-oriented financing mode. Traditional financing mode is carried out by use of credit standing of capital demanders.  Financing through capital securitization by means of the future earning ability of original beneficiarys some capital. Capital liquidation ability and credit standard of original beneficiary is dissevered thoroughly.

In a word, real estate securitization is a diversity financing system, which is capital income-oriented and takes real estate mortgage loan as core. Its a financing process for real estate capital through securitization financial tools such as stock, investment fund and bond including real estate mortgage loan securitization and real estate investment profit securitization. It aims at mobilizing and segmenting real estate industry and realizing a popular real estate capital, professional operation and diversifying investment risk, providing enough capital for real estate market and promoting fast development of real estate and financial industries with functions of real estate. Its a financing renovation and is an important part of world economic democratization movement more. [2]

3. Competition Advantage of Real Estate Securitization Compared with Other Capital

1) Real Estate causes more market needs, promotes economic growth, and pays important attention to both investment need and consumption need efficiently. It concerns enterprises and personal investment and consumption. In addition, it realizes double promotion for economic improvement, efficiently provokes growth of overall social needs and drive activity of entire market and continuing economic development. [3]

2) The fact of house mortgage loan securitization makes relevant financial institutes adjust their asset indebted structure, improve liquidity of their asset and provide new capital resources for meeting new house mortgage loan demand. At the same time, it provides a new financing channel for some small and medium-sized banks with ideas of entering house mortgage loan market facing difficult financing situation.

3) The house mortgage loan business in our country still has a very big growing space and liquidity risk of banks have appeared gradually. But one important function of real estate securitization is to lower liquidity risk by selling mortgage loan beforehand and withdraws capital. House mortgage loan is a long business with bad liquidity. It is difficult for banks to have a corresponding adjustment for indebted structure in a short time. Mortgage loan securitization provides an effective channel for banks to handle such matter according to shifty market environment.

4)  For real estate investors or financial institutes providing loan, it means high investment risk for its attribute of great investment amount and bad liquidity. Real estate securitization let a lot of property owners shoulder certain risk at the same time when they profit with value-added securities. In addition, trading system in second-level market provides risk-relocation and transferring systems for investors. Thus, risk brought by concentration investment in real estate market is transferred and dispersed, supplying ability of long period capital and risk capital are improved, which is good for continuing development of real estate industry.

5) With real estate securitization, banks could sell their real estate mortgage loan, which can meet vast small and medium-sized investors’ hope participating real estate investment, is in favor of establishing a long and stable immovable property capital market, solve misfit contradiction between capital and indebted period, attract more social capital continually, relive banks’ pressure to repay the loan and lower financing capital of real estate industry. Moreover, in market competition, banks need continually widen their business; promote new securities to secure their development. For instance, in trust fund investment and real estate mortgage loan are perfect investment methods, which are well known in international financial market with their security and profitability. So, real estate securitization is also an objective need for financial industry development.

 

4. Asset Securitization

1) Brief Introduction: Real estate construction boom in our country make a fast value increase to the industry since 2000. Sichuan Province enjoys title of the land of abundance for a very long time. As the capital city of the province, Chengdu expects a real estate development future by the provincial government. How to promote the real estate in the city and how to add value of real estate become one of the important problems concerned by current provincial government. Chengdu Zhixin Industry Co., Ltd ,  raised capital to develop real estate of Chengdu, obtained rich investment earning through implementing real estate securitization and pre-sale sale profits after real estate developed

2) Case Analysis: advantage brought by real estate securitization: it improves liquidity of asset of the financial institutes issuing house mortgage loan; causes more market demand; promotes economy development; boosts liquidity of credit asset of commercial banks; improves capital utilization rate of banks; brings more capital resources and adds intermediate business earning; It transfers and distributes risk for real estate investment and resolves the contradiction between short –period deposit  and long-period loan.

5. Conclusion

The financing method of asset securitization is feasible and effectual in real estate development field [4]. And its relevant theories and skills of asset securities had been widely used in overseas area, which provide reference for us to adopt these ways and methods in our country. Our country has been able to fulfill conditions for the securitization. Currently, several subject matters for operating asset securitization have been existed and real estate enterprises, acting as original beneficiary representative and special in trust institutes can be set up legally. Moreover, investment banks- the best performance style had played their roles in investment and financing fields. Although its position and function should be given more clear explanations, we can expect that they will be executors as concrete operation in asset securitization operation market.

In addition, as the end undertakers for asset securitization, vast investors are also available. There are large financial leavings and great foreign exchange. So, vast consuming power will support the securitization and the real estate securitization in commercial banks in our country is feasibility. If only we reinforce and improve several aspects such as market base, market environment, market mechanism and asset situation of real estate loan asset, the real estate asset securitization will be developed fast in the real estate development in pour country. In addition, commercial banks will also benefit a lot form the project asset securitization.

Reference:

[1]Jin Yusen, Asset Securitization Practice, Custom Press, 2001

 

[2]Sung Wook Joh, Corporate governance and firm profitability: evidence form Korea before the economic crisis [J]. Journal of Financial Economics 2003, 68: 287-322;

[3]Lee. Jevons and Xing Xiao, 2002, Cash dividends and large shareholder expropriation in China working paper;

[4]Wng Ruiying, Xie Qingxi, Guo Fei   Steady Development of Our Country’s Asset Securitization Market, Finance, Trade & Economics   2003 12:29-35;

 

 

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