Research On Market Risk Assessment And Management Of China Real Estate Investment Trust (REITS)

Along with the financial system continuing to deepen and real estate market continuing to develop in China,many problems of the real estate market have emerged recently. Real Estate Investment Trusts(REITs),which stems largely from the United States with mature financial markets,is still a new investment tool to our country.The new type of financial tool is very vital to the entire financial industry and the real estatemarket.REITs can not only provide new financing channels and promote the improvement of the real estate industry, but also reduce the potential risk of commercial bank,and provide a new investment tool with smaller risk and stable income. REITs can promote a further development of financial markets to a mature market.As an innovative financial instrument of real estate, REITs are playing a more important role in the real estate and finance, and the market demand of its investment and financing is growing. Therefore, academics and policy makers have paid widespread attention to REITs. In last ten years REITs developed very rapidly in the world, and the outstanding performance of Asian listed REITs attracted world’s-wide attention. However, since the sub prime mortgage crisis, it is believed by investors and regulators that the co-movement between the stock market and REITs have been enhanced, the valuableness of REITs have gradually weaken. Thus, the growth momentum of REITs in Asia are not as good as usual, which may also have slowed down the process of China REITs. Meanwhile, as the scales of listed companies have increased and the management forms have made constant innovation, the questions of measurement and control of REITs market has arisen gradually. The answers to the questions contribute significatly to the development of China REITs in future.In these years, researches on REITs both in domestic and at overseas are mainly focus on return on investment and development mode of REITs, but only a small portion of them involved in risk management and control. Combined with the real data of financial theory and financial market, this paper would research how to measure and control the market risk of REITs, so as to find the objective basis behind the problem.It is vital theoretical and practical for China to construct a regulatory system of REITs in line with national conditions.In order to establish the analysis frame of the article, Firstly, itdemonstrates the correlation between the stock market and real estate market with A-REITs, J-REITs, S-REITs. The results show that the prices of REITs are not only affected by specific operating conditions of the real estate market, but also by the impact of the operation of the securities market.Therefore, in the process of evaluating the market risk of REITs,we should consider the impact of the securities market and the real estate market. In addition, the market risk of macro economy affect thedevelopment of all industries. Therefore, this dissertation would consider macroeconomic market risk as the indirect source of REITs market risk, and the stock market and real estate market as the direct source of risk in this paper.In the study of the impact of macroeconomic market risk on the REITs, this dissertation used the VAR model to analyze the impact of macroeconomic, interest rate, inflation and stock market on REITs. In the empirical analysis, this dissertation take the financial crisis as the node, and divided the research stage into pre-crisis stage and post-crisis stage.The results show that, the growth rate of industrial added value and the REITs itself has an impact on the REITs during pre-crisis stage. As for post-crisis stage, the impact on the REITs is inflation and growth rate of industrial added value.In the analysis of REITs financial market risk, this dissertation used VEC model and Garch model to assess the risk. And the results show that REITs is a low-risk securities, it impacted by financial market, but the impact is limited. But financial market risk of REITswould rise sharply when the great changes happenin financial market, such as the subprime mortgage crisis in 2008.In the study of REITs real estate market risk, this dissertation compared several assessment indicators about real estate risk, the result is the price of income than is more operability and scientific, this dissertation compared several real estate risk assessment indicators, the house price-income ratio is more operable and scientific.On this basis, this dissertation constructed a new house price-income ratio with the full consideration of family structure effective purchasing power and other factors. And used ARMA model to assess the risk level.In view of theoretical and empirical analysis, REITs is a financing tool with less risky and easy to control. In this paper, the author combined with the specific circumstances of the impact of the three kinds of market risk on the REITs, proposed the risk management and control recommendations of China’s REITs.According to the results of REITs macroeconomic market risk, the paper proposes that in the economic downturn, REITs operators need to take a relatively stable investment strategy; and in the process of marketization of interest rates, according to interest rates rise and decline of the situation made different business strategy, improve the interest rate risk management. Secondly, according to the research results of REITs securities market risk, the article believes that China should learn from the experience of the United States, Singapore REITs, when the stock market volatility. The best strategy is to take stock index futures and other financial derivatives to hedge the risk of the securities market. At the same time, we should pay attention to the promotion of information disclosure strategy, so that investors can grasp the correct and effective information. In the real estate market, the result testified that real estate market risk has a remarkable effect on REITs and China’s current real estate bubble is large, this article suggests that REITs operators need to create a third class indexes to take effective measurement of risk of REITs influence.