Chinese urban fixed asset investment gained pace in the first 10 months of 2007, raising expectations of an interest rate hike.

The National Bureau of Statistics said fixed asset investment — a key measure of spending on infrastructure, plants and other major projects — rose 26.9% to RMB8.9 trillion (US$1.2 trillion).

Li Huiyong, an economist with Shenyin Wanguo Securities based in Shanghai said, ‘We think the government will hike interest rates… to curb inflation.’

Other bullish data this week included a record high trade surplus of US$27.1 billion. But the inflation figures, which included a 17.6% jump in food prices in October, are causing the most official concern.

The central government in Beijing has already raised interest rates five times this year in a bid to prevent overheating, but the economy has continued to surge, expanding by 11.5% in the third quarter.

Qiu Qingdong, a Beijing-based analyst with Guodu Securities said, ‘It seems previous interest rate hikes have not had any major impact on money supply. Macroeconomic policies so far have not been very effective.’

JP Morgan Chase Bank said in a note to clients, ‘Solid growth momentum in the real economy has shown limited slowing amid excess liquidity conditions in the financial system’.

According to The Research Report on the Competitiveness of China Real Estate Enterprises issued by the Development Research Center of the State Council real estate enterprises are constantly developing new funding channels. Their capital has expanded rapidly and, by extension, their land purchases are becoming larger and larger.

Currently, the largest real estate developer has 45 square kilometers of land reserves. In many second or third tier cities, it has become increasingly difficult for more and more real estate enterprises to acquire land.

Country Garden, one of the leading property developers in China, is the largest ‘landlord’ in the country. By the end of this July, the company’s total land reserve had reached an astounding 45 million square meters. Its land reserves nearly doubles that of the second largest landholder. Country Garden real estate primarily focuses on suburban areas of the first, second and third tier cities; therefore their asset prices are relatively low.
Vanke owns assets of nearly RMB50 billion. Vanke’s land reserves exceeded 15 million square meters in the first half of 2007.
New World China Land’s land reserves have reached 17.53 million square meters.
Yuexiu has made investments in the real estate industry for 5 years and has maintained assets of RMB30 billion and a land reserve of 6 million square meters.
China Resources Land has land reserves of8.199 million square meters.
R&F Properties has land reserves of 20.92 million square meters.

Source: China.org.cn

This is basically what the government does not want to happen. According to a report from Colliers, Shanghai’s en-bloc property acquisitions exceeded $1.3 billion in the first half of this year, coming close to the total for all of last year.

(What is this ‘en-bloc’ business? It is not English. Drop the hyphen, which no dictionary recognizes, and it is normally defined: ‘As a unit; all together.’ Here it appears to mean the whole building. So why does Colliers not use an English term like ‘entire-block’? Same reason computer companies say form factor instead of size. Because ‘en bloc’ looks more important than saying ‘entire-block’. It is this sort of thing that makes journalists old before their time.)

Putting en bloc to one side, think about the claim for a moment. In the first half of the year it was not that far away from the total for last year. That is not a market that is stabilizing, that is going backwards, that is totally under control.

Colliers International reported that residential and office properties were the two most sought-after types of entire-building deal.

Mac Chan, senior manager of research and consultancy at the real estate services firm, said, ‘This is significant growth as the en-bloc acquisition amount for the entire 2006 was $1.9 billion, according to our statistics.’

Among all en-bloc (or entire-building, if you prefer) investment deals concluded in Shanghai in the first half, 38% involved residential developments, followed by 32% tied to mixed-use properties, 17% to office space and 13% to industrial assets.

In 2006, office properties accounted for a dominant 61% of en-bloc transactions concluded in the city while the residential segment came in at 31% and retail 8%.

The report said overseas investors showed great interest in acquiring high-end residential assets in the first half of this year when five major deals were secured.

For example, Morgan Stanley purchased two blocks involving 219 units in Novel City in the Xujiahui area in January, and Indonesia’s Salim Group acquired a residential project in downtown Laoximen in April that has a gross floor area of 200,000 square meters.

If you have a lot of buying going on, prices go up. Capital values for luxury properties rose 2.7% in the first half, and rents increased 2.9% to $21.70 per square meter per month.
Source: Shanghai Daily

The Property Law, due to take effect in China October, and which was passed during this year’s National People Congress, states that after the expiry of the land lease it can automatically be extended. This is very important as it moves the idea of private, as opposed to state, ownership, one step further ahead.

Now the Ministry of Land and Resources (MLR) will start some pilot projects testing how best to extend dwellers’ rights when their land lease expires.

As it stands the current law is that the country owns the land. Individuals only have the right to use it for a stipulated period of time and the longest term is 70 years. After which the land reverts to the country.

The extension of land use rights is a key issue. It can be argued, and has been so argued, that if the rights to land can be extended automatically it is tantamount to owning the land.

The MLR said a series of pilot projects on this aspect of the Property Law would be carried out to better protect the interests of farmers who lost their properties due to land acquisition.

The ministry also ordered its subordinates to annul local regulations before October which fail to comply with the Property Law.

Wang Liming, a professor of the Renmin University of China, said, ‘The Property Law does not specify how the term would be extended and whether people will be charged, that is what needs to be resolved through the pilot projects. Theoretically, people have the right to stay in their houses until the house becomes inhabitable or torn down.’

Tang Peng’ao, a researcher with the Chinese Academy of Social Sciences, said the Property Law was a ‘pledge’ by the country to the world to grant all properties equal protection.

He gave an example: ‘If a foreigner buys a car in China, he owns it and is protected. There is no doubt about that.’

He wants to see the same for land. He said, ‘The law requires a unified registration system for fix assets, which means there will be only one place for land registration. It will streamline the current multi-registration system of different government departments.

‘Laws regulating fix assets registration, housing demolition and relocation, are imperative. And an effective administrative enforcement of the law is also vital.’

Source: China Daily

Land-use tax will triple this year. This means that foreign developers will lose an important tax advantage as part of the country’s efforts to cool its booming real estate market. This is in a recent notice from the State Administration of Taxation so can be taken as being official.

The land-use tax imposed on developers will be raised to between RMB1.5 (19 cents) and RMB30 per square meter per year in big cities, depending on the size and location of the property.

Land-use taxes in other areas will be lifted by RMB0.6 to RMB24. Budget apartments built for low-income families will remain exempt from the tax.

In addition, for the first time, overseas-invested real estate companies will be required to pay the same land-use tax as their domestic counterparts.

Shao Minghao, an analyst at the Shanghai Hanyu Property Agency, said, ‘The land-use tax and other property taxes specified earlier will surely have a very positive influence on the healthy development of the country’s real estate industry. Meanwhile, operations costs for overseas-invested real estate developers will be increased due to the land-use levy.’

Last month, the State Administration of Taxation said on its website that it will begin to formally levy a value-added tax on land — 30%-60% of developers’ net gains from property deals — effective February 1.

China construction Minister Wang Guangtao said the central government intends to require owners of large apartments to pay an annual tax on the value of their homes at some point in the future.

The initial reaction by overseas developers is that the land-use tax won’t have a major influence on their development plans.

An official with Keppel Land, the property arm of Singapore’s Keppel Group, said in an interview, ‘Our finance department is currently working to check how big an effect the new policy will have on our business operation. It may affect our profit margin to some extent, but it won’t change our long-term confidence in and commitment to China’s real estate market.’
Siurce: Shanghai Daily