Specimen (The Way of Leadership for Real Estate Leaders)

Author: Lang Xianping
Publisher:
Publish Date: 2006-01-01
Features: Lang Xianping's View: Currently, real estate has become China's riskiest industry, and the practice of the entire nation speculating in real estate is a national tragedy. The risks in China's real estate sector are primarily manifested in: significant fluctuations in price levels with vast regional disparities; an unreasonable financing structure with high leverage levels; instability in policy direction; and the impact of speculative capital on the industry. The experience of Hong Kong is worth, as certain aspects of mainland China's real estate market bear a strong historical resemblance to Hong Kong's. The reason these Hong Kong companies have in competition is a crucial point: they effectively employed appropriate risk management strategies. These strategies ultimately boil down to maintaining a high cash flow and a low debt-to-equity ratio. In the face of uncontrollable external risks such as the Asian Financial Crisis, macroeconomic regulation, and the influx of foreign speculative capital, the only viable approach is to mitigate or offset the negative impacts these risks have on the company through proper risk management strategies. The average debt-to-equity ratio of Hong Kong real estate companies (rather than the debt-to-asset ratio) is generally maintained around 20%, while the proportion of cash to total assets is as high as 5% or more. This can be considered the risk management standard for the industry.
Lang Xianping's View: Currently, real estate has become China's riskiest industry, and the practice of the entire nation speculating in real estate is a national tragedy. The risks in China's real estate sector are primarily manifested in: significant fluctuations in price levels with vast regional disparities; an unreasonable financing structure with high leverage levels; instability in policy direction; and the impact of speculative capital on the industry. The experience of Hong Kong is worth, as certain aspects of mainland China's real estate market bear a strong historical resemblance to Hong Kong's. The reason these Hong Kong companies have in competition is a crucial point: they effectively employed appropriate risk management strategies. These strategies ultimately boil down to maintaining a high cash flow and a low debt-to-equity ratio. In the face of uncontrollable external risks such as the Asian Financial Crisis, macroeconomic regulation, and the influx of foreign speculative capital, the only viable approach is to mitigate or offset the negative impacts these risks have on the company through proper risk management strategies. The average debt-to-equity ratio of Hong Kong real estate companies (rather than the debt-to-asset ratio) is generally maintained around 20%, while the proportion of cash to total assets is as high as 5% or more, which can be considered the risk management standard for the industry.