Study On The Investment And Financing Of Real Estate Project A

Project investing is some kind of systematic engineering, which needs elaborate schemes and scientific assessments. From the start of investing motivation to the realization of expected yield, there are a series of associated processes impacting each other. Challenges such as unexpected risk and loss may confront investors in any process. So we need to seriously prepare the project plan and assessment in early phase.Recently we visited the real estate company B on the spot in Chengdu and investigated its project A. Project A involves a large sum of money, but whether it has large value and bright market future is the key factor that investors care. This article based on the investigation and particular research answered the question well.In the article we used theories form technical economics to demonstrate the financing feasibility and investment feasibility for project A. And we adopted some suggestions that aroused from the project processes to search the optimum finance management.In the introduction, we lay out the background of real estate industry, relevant international theories and structure of this article.In the first part we illustrated the methods we used to analyze the real estate project A. Besides we introduced the conception of real estate investment, theories from technical economics and basic measures of technical economics.The second part introduced the basic situations of project A, including latest national regulation policy and status of Chengdu real estate market. Meanwhil we analysed the market anticipation as the basis of measuring sales revenue, cost and cash flow.In the third part, technical economics was used to assess project A of company B. We focused on corporate finance to get the feasibility of investment and financing. This part consists of two segments: One, the investment was evaluated through two fields: static investment recovery term (PP) and dynamic investment. Residential pattern of project A varies from 50 square metre per household to 90 square meter per household with flat price at 3700 Yuan per square metre for residence, 8000 Yuan per square metre for shop and 50000 Yuan per garage. The total investment involoves 677.90 million Yuan, which was raised from three sources: own fund (237.26 million,accounts for 35%), bank loans (150 million, accounts for 22%) and proceeding sales revenue (accounts for 43%). We evaluated the gross profit before tax up to 146.11 million (accounts for 18.14% of sales) and net profit up to 128.23 million (accounts for 15.92%) in the operation periodd. The internal rate of return is 14.34% approaching statutory industry benchmark interest rate and the net present value before tax will come to 51.20 million (I=8%). The investment could be returned after 4.38 quarters as calculated, indicating the feasibility.Becasuse of the internal instability of investment, we considered the impact of fluctuanting factors on the evaluation. The uncertainty analysis on real estate investment is in view of break even and susceptibility respectively.From the susceptibility analysis of project A, we found the risk of realisation rate of residence sales is higher than other factors. In order to achieve an ideal realisation rate of residence sales (100%), we proposed several plans:1. Shop sales has the higher gross profit rate and less impact on the project profitability. When the realizaion rate of shop sales is beyond expectation, we should increase sale price. So the increase of profit will be much more than of that of risk.2. Decreaseing the sale price of residence to appropriate level is a good way to increase the realisation rate of residence sales. So the decrease of profit will be much less than that of risk.3. Using cost control methods to improve the margin of safety.Two, most common financing patterns of real estate were briefly introduced in the article, namely listing, real easte trust, REITs, corporate bond and so on. And we discussed the own fund, bank loan and advance sale finicing at length.In the article we analyzed the status and feasibility of financing at Chengdu real estate company B. In conclusion, the largest net negative cash flow will appear in the third quarter of 2007, approximately 300 million. In order to meet the need of capital, company B has to finance from outside for about 150 million. Considering the finance cost, company B will draw the money twice. The first drawing consists of own fund (230 million) and loan (66 million) in the third quarter. Second drawing comes from loan (84 million) in Nov. 2007 when the main buildings project comes to settlement.Three, according to the research mentioned above, we put forward corresponding finance management advices and measures concerning engineering control, marketing and financing.The premise of implementing project successfully is quantitative capital attained in time. When we estimate the total amount of capital required in the project, the plan of raising money should be considered subsequently. We focus on how to raise money, from which financing is of the lowest cost. This article is different from general research report of real estate investment. In the article, we planned financing channels of project A to maximize the profit.In this article we provided a lot of theories and practices as the basis of feasibility analysis, which could be important references for the administrators.However there are still some problems omitted on account of length limitation.First, because of different governance structure, the choice of financing channels varies in different enterprises, especially the state-owned company. The administrators pay more attention to the social effect and higher authorities'thought when they make decisions at state-owned company. In the article, we just study the Chengdu real estate company, ignoring other companies'financing, especially the listed companies.Secondly, we just analyzed the short term financing from outside as the short term of project A. The long term financing strategy is not considered.Finally, we study financing strategy from the position of real estate industry but the relevant assets securitization was not considered. Because the assets securitization is concerned with more macro-economy such as national economics strategy, risk control of bank loans and disposal of bad assets, I did not discuss it in the article.