Research On Valuing Real Estate Companies Listed In The Stock Markets In China

Real estate industry is one of the pillar industries in the Chinese economy, thedevelopment of which has great impacts on the well-being of the people. The recentslowdown of the real estate market growth causes many people become worried about itsfuture development; some even believe that the property market in China has entered intoan adjustment period after so many years of rapid growth. At this critical moment, it’s ofparticular importance to reasonably estimate the real value of the real estate companieslisted in the Chinese stock markets. In practice, different valuation methods will lead todifferent valuation results, this is particular true when different models used in thevaluation of real estate enterprises, the research on which now has become one of the hottopics among the practitioners and academics of valuation and capital market, with itsfocus being placed on the valuation of real estate companies listed in the stock exchanges.The paper firstly elaborates on the background of why the subject is chosen as themain concern of this research. There are facts showing that reasonably estimating the valueof real estate company’s shares provides better decision making basis to investors,managers and policy makers. Secondly, the research achievements made by academicsboth home and abroad are reviewed, and the paper finds out that business valuation for ourcountry’s listed companies by using the business valuation theory from overseas haswitnessed tremendous development. Thirdly, it examines the related factors influencing thereal estate valuation from three perspectives respectively, which include the macroeconomic environment, the industry environment, and the real estate industrycharacteristics. The macro and micro analysis offers an initial understanding of thevaluation object, and also provides theoretical basis for further empirical analysis and theevaluation process. Fourthly, a summery of the related theories of real estate valuation andvaluation methods is made, including the three types of stock valuation models, namely,absolute valuation models, relative valuation models and option pricing model. Throughthe comparative study of various kinds of models of valuation principles, the assumptions, advantages and disadvantages, the applicability of the various valuation models to the realestate industry is further reviewed. Based on above study, the paper uses three valuationmethods including free cash flow discount method, price-to-book ratio method and P/Eratio method to analyze the Vanke A shares and the results of the valuation is examined.The results show that the three valuation results of the various models do not converge.And there is a big gap. Findings include that valuation result of the free cash flow discountmethod is significantly higher than the real price of enterprise valuation results, the resultof price-to-book ratio method is relatively closer and the valuation result of the P/E ratiomethod is the closest to the true value, which is the most suitable one for our country realestate stocks valuations at this stage. Finally, the paper puts forward reasonable valuationresults and investment advice, and also summarizes the existing problems andshortcomings which are to be dealt with in the future.