This is the sort of situation that gives developers an attack of the vapors. They need to take two Aspirin and have a nice lie down before considering the implications.

On April 7, 2008, the State Administration of Taxation issued a circular governing provisional Corporate Income Tax payment issues for real estate developers , which is retrospectively (note that word for it gives one pause) effective from January 1, 2008.
It applies to the following enterprises:

(i) Chinese resident enterprises that are engaged in the real estate development business, including both domestic Chinese enterprises and foreign-invested enterprises; and
(ii) Those enterprises that make monthly or quarterly provisional CIT payments based on actual profits.

The provisional CIT payable is the result of multiplying such profit by the CIT rate (standard rate of 25% from January 1, 2008). That may be a little difficult to follow but take it that it does not make the life of a real estate developer any easier.

After the final completion of a project that has been pre-sold, the prepaid CIT will be reconciled with the actual CIT payable, based on the project’s actual profits.

In other words when you have made your profit the tax that can be demanded will be worked out.

For typical real estate projects, the profit rate shall be:

Not lower than 20%, for projects located in provincial capital cities as well as certain cities in special administrative regions and other designated cities.
Not lower than 15%, for projects located in second-tier cities.
Not lower than 10%, for projects located in other areas.
For low cost residential, the profit rate shall not be lower than 3%.

For real estate developers this does not bode well. Indeed, it bodes ill. Much, much more on this in a Mondaq special report which you can find by clicking HERE.
Source: Mondaq

China will create five new ’super ministries.’ The goal of this move is to streamline the bureaucracy, clarify conflicting responsibilities, and curb corruption.

1. The National Development and Reform Commission — NDRC — will focus on macroeconomic planning, paying particular attention to price controls and the management of energy policy.
2. The Ministry of Finance will reform and improve its management over budget and taxation.
3. The People’s Bank of China will strengthen the system of monetary policies and improve the mechanism of exchange rate formation.

The State Council also plans to strengthen the coordination amongst the three above-mentioned bodies,

One area that has not been addressed is the lack of supervision over the NDRC. The three bodies are not on equal footing. The NDRC will set annual control targets to coordinate monetary, fiscal, and industry policies, and this means that it will remain a key player in the State Council.

The Ministry of Construction change to the Ministry of Housing and Urban and Rural Construction was according to Forbes.com, in order to emphasize its role in building affordable housing for low-income families in China. Our illustration is of elderly low cost housing in Chongging.

As provincial governments and city councils assume powers the NDRC had in the past, the decision-making process will become more decentralized. This may bring about positive changes, as it should clarify which level of government is responsible for interpreting laws and regulations and approving projects. It is equally possible that the transition of power to the local level may have a negative impact on construction in areas of China.

The new organizational scheme places the Ministry of Construction’s urban public transport management functions under the new Ministry of Transportation.

The aim of the restructuring and creation of ’super ministries’ is to improve regulation, rule of law, and adherence to a market-based economy while simultaneously curbing corruption, decreasing pollution, and cutting down on turf wars between ministries and disparate sectors of the bureaucracy. All of these are long-standing objectives of the central government.
Source: Mondaq

The China Securities Regulatory Commission has stressed again that a real estate developer cannot use the fund-raising from its initial public offering to buy lands for real estate development as well as hoard land reserves and properties.

An executive at a property company that is seeking regulatory approval for an IPO said that if a real estate developer mentions such purpose in the IPO application, it will be refused.

Industry analysts said the result of this is listed real estate developers now need to pay more attention before they rush to buy land, which used to be a major driver to their share prices.

Zhang Yuliang, chairman of Greenland Construction said the reminder from the commission is substantially an encouragement to quality real estate developers that are expecting to list in the domestic A-share stock market. He said the restriction would not affect Greenland, the largest real estate developer in Shanghai.

However, an analyst at a consulting services provider in Shanghai, said the issuing of the reminder will impact the market sentiment to a certain extent. Some real estate developers will have to slow the IPO applications and rewrite their applications to meet the requirement.

And perhaps the issuance of the reminder signals a substantial change in CSRC’s attitude toward supervision on the domestic real estate industry and a change in appraisal standard for listed real estate developers, which used to be closely linked to their land reserves.

An UBS analyst earlier said the situation that investors last year chased by listed real estate developers with affluent land reserves will change in 2008. And the prediction was made that real estate developers in second- and third-tier cities would continue to seize land reserves.
Source: Trading Markets

Property prices are now showing signs of weakness in many of the country’s key markets. The Chinese government is on a high-profile campaign to clamp down on new bank loans, hoping to curb inflation.

News reports state that companies that leveraged big last year are now strapped for cash, unable to build on the land they have accumulated. Beijing pledged earlier this year to tax and seize hoarded land.

Ashley Howlett, a Beijing property lawyer with Jones Day who heads the firm’s greater-China construction practice said, ‘The swagger is gone.’

In recent months, he said, Chinese clients have been approaching him for ideas on alternative sources of funding, such as forming a private-equity joint venture with a global property fund or taking out a line of credit with a foreign bank.

The latest casualty of changed conditions: Guangzhou-based developer Evergrande Real Estate Group, which last week shelved an initial public offering it hoped would raise as much as $2.2 billion. Now it is looking to raise that money by different methods.

Evergrande wrote in its listing prospectus, ‘We are highly leveraged, and a deterioration of our cash-flow position could materially adversely affect our ability to service our indebtedness and to continue our operations.’

Soho China Ltd., a major commercial and residential developer in Beijing, recently dropped the idea of doing a domestic stock listing amid souring market conditions. Pan Shiyi, the company’s co-founder and chairman, told Shanghai Securities News that Chinese developers this year will ‘find themselves in extraordinarily difficult financial straits.’

In the past few months, Wang Shi, the head of megadeveloper China Vanke, a Shenzhen-listed company, surprised the market by slashing prices heavily on new flats and suggesting in a recent television interview that people wait three to four years before purchasing a new home.

Read the longish and depressing — if you are a real estate developer — news by clicking HERE.
Source: MyProps.org

An industry report released by the Shanghai Real Estate Association concludes that while nationwide investment into the real estate industry grew rapidly over the past year, domestic supply of small- and medium-sized apartments still remained inadequate almost two years after the 70/90 policy was introduced.

The report, conducted annually by the China Real Estate Association, said the speeds of sales of small- and medium-sized apartments indicated a great shortage of such products.

The report said, ‘Statistics compiled in 40 major Chinese cities between January and December last year has found that approved space for presale and registered sold space for apartments below 90 square meters in size both accounted for about 25% of the total, which means a full digestion of such products through the past 12 months,’

In May 2006, the Ministry of Construction announced that the combined GFA (gross floor area) of all residential units below 90 square meters in size should account for more than 70% of the total GFA of a project.

The policy, applied to residential developments that were given approval to commence work after June 1, 2006, was designed to raise the supply of small- and medium-size homes and discourage construction of luxury houses.

In Shanghai, less than ten ‘70/90′ projects have been released to the market.

Source: Shanghai Daily