Goldman Sachs, a leading global investment banking, securities and investment management firm, said in a recent research report that it retained its prudent attitude towards the real estate market in mainland China.

Perhaps we should get a definition of the word prudent: sagacious in adapting means to ends; circumspect in action, or in determining any line of conduct; practically wise; judicious; careful; discreet; sensible.

If that is what Goldman Sachs is suggesting it seems judicious, careful, discreet and sensible.

The report suggests that housing sales around the Yangtze River Delta region have another drop coming in the near future.

For the listed real estate developers used in this research, average housing sales for the first half of 2008 accounted for only 30% of the sales goal for the full year. Which means to make-up, sales have to be 70% in the second half which presents real estate developers with a tough challenge.
Source: Trading Markets

China could kick-start a property trust market next year to give its pension funds and insurers an alternative to volatile stocks and meager returns from government bonds, according to an industry group.

The move could lead to the listing of as much as $60 billion worth of buildings in the form of real estate investment trusts (REITs) over the next five years.

Stock market watchdog China Securities Regulatory Commission (CSRC) sent a delegation to Australia in May to study property trusts, and is working with other authorities including the central bank to draw up legislation.

The trusts will probably be externally managed, in line with the Singapore and Hong Kong model, said Peter Mitchell, head of the Asian Public Real Estate Association, which is advising the CSRC on the matter.

China is pushing ahead with REITs because insurers and pension funds are desperate for the stable returns they offer to match long-term liabilities. REITs tend to yield more than bonds, and offer capital gain if property values rise, but are typically less volatile than stocks.
Source: The Guardian London

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

Singapore property developer Keppel Land has acquired a property site for RMB155 million in Shenyang City, the capital of Liaoning province.

The property is adjacent to another site that Keppel acquired in August 2007.

The combined site, measuring about 34 hectares, is intended for integrated township development with a mix of mid- and high-rise apartment blocks.

The project is expected to end up with about 5,600 homes and is scheduled to be completed in 2013.

The first phase of the development, targeted at upper middle-income homebuyers, will be up for launch in 2009.
Source: Trading Markets

The Blackstone Group — a group of investors who might be likened to a pack of ravening wolves although this is because there is only one official aim, make money and the devil take the hindmost. There are many private equity companies like that so it is wrong to point the finger.

This epitome of American capitalism (which is handling major investments for the Chinese government) is about to make its first property purchase in China, acquiring a commercial property in Shanghai for RMB1.1 billion ($158 million).

The plaza is made up of a six story, 25,312 square meter shopping mall and commercial complex.

The purchase, made from Hong Kong-listed VXL Capital, will give Blackstone a 90% stake in Changshou Commercial Plaza, a development in Shanghai’s Putup district. According to China Securities News, VXL will retain a 10% stake in the property.

Blackstone seems to be increasing its activity and ties with China since the country’s mammoth sovereign wealth fund which is, as it were, the government’s money box, China Investment Corp., invested $3 billion into the private equity firm last year.
Source: Private Equity Real Estate