Securitization And Credit Risk Management Of Real Estate

Since1970s in the Western financial markets, a series of new financial products gradually emerged, such as some new means of financing, payments clearing, management as well as some new forms of financial organization. Among them, one of the most unique innovations was real estate securitization in all kinds of new financial products. It succeeded to creat a model which brang the real estate industry and the financial industry together. Not only the common development of innovation did great benefits for the real estate investment financialization, but also it allowed the companies and persons to rise to a new height in assets management concept. In recent years, China has a sustained and rapid development of the economy and the infrastructure, which needs to speed up the demand for real estate related financial services. The current development of the capital market conditions in China and the development of capital demands shows that China already has a certain ability to carry out the basis of the real estate securitization. However, how to learn from the developed countries and how to bring the financial innovations into Chinese economic construction services is still a new subject for the current academic to discuss.Real Estate Securitization is of high degree of market. It is a complex financial engineering with a number of participants and risk concentrations. It needs a very rigorous process of transactions. Although the significant structure benefits of the real estate securitization is obvious, the risk of it is also complex and volatile. Therefore, how to make the real estate securitization risk analysis, measurement and control, and how to the implement the real estate securitization in China in accordance with the Chinese national conditions, has become a research topic in both theoretical significance and practical significance.Among the developments of the real estate securitization in Asia, Taiwan Real Estate Securitization grows fastest Compared to the United States and Japan, Taiwan and mainland China share a more common in not only history and tradition, but also share similar legal systems and economic environments. In that case this paper will focus on drawing on the basis of the research of the Taiwan real estate securitization and risk management, combining them with the Mainland specific national conditions. Research and analyse the causes of the real estate securitization risk, different constraints as well as how to prevent risk, in purpose to provide some value in the field of real estate securitization risk control to investors.Credit risk, also known as the default risk, is the risk that for various reasons the borrower, securities’issuer or the counterparty are unwilling or unable to fulfill the conditions of the contracts, resulting in the possibility of loss of the bank, investors or the counterparties.Since the REITs has a complex organizational structure, credit risk in REITs exists on different subjects. The REITs credit risk can be divided into three sections respectively, which are initiator credit risk, SPV credit risk and assets pool credit risk. This paper explores all the main sources of the three sections’credit risk, as well as the forms of risk and the risk management measures. Futhermore the quantitative analysis is used in the measurement of assets pool credit risk. This paper selects the existing six files data of REITs in Taiwan, using Credit Metrics model to quantify the credit risk of the REITs asset pool, and then obtain REITs’VaR. Finally, this paper make a REITs design of Jiangmen City, Guangdong Province, LED Expo projects.