ASIAN REAL SnapShot! · 2020-07-22 · SnapShot! Real Estate/Issue 2, November 2013 ... foundation...
Transcript of ASIAN REAL SnapShot! · 2020-07-22 · SnapShot! Real Estate/Issue 2, November 2013 ... foundation...
ASIAN REAL SnapShotReal EstateIssue 2 November 2013
Current developments in the key real estate markets in Asia Pacific
bull Australia Tightening of debt deductibility rules
bull China Impact of Chinarsquos VAT reforms on the hospitality sector
bull HongKong The Double Stamp Duty
bull India New regulatory measures announced
bull Indonesia Land regulation reform and loan restriction
bull Japan New economic policies introduced
bull Singapore Introduction of the Total Debt Servicing Ratio
framework
bull Taiwan Recent developments in Specifically Selected
Goods and Services Tax levied on real estate
bull Vietnam Obtaining Land Use Rights and associated
financial obligations
October 2013
Introduction
WelcometothesecondeditionofKPMGrsquosAsianRealEstatesnapshotInthiseditionthefocusisontheregionrsquosdifferinggovernmentpoliciesimplementedandtheeffectsithasonrealestateinvestmentinAsiaPacificFromHongKongrsquosintroductionofaseriesofmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationtoIndiarsquosgovernmentreformsthesechangesareaimedatcreatingastabilisedgrowthoftherealestatemarketintheregion
ThisdocumentispreparedbyanetworkofseasonedKPMGprofessionalsalignedtodifferentfunctionalgroupswithinAsiaAllhaveadeepunderstandingregardingthecomplexnatureoftheregionalrealestatemarketsKPMGRealEstatehasprofessionalexperienceandanunderstandingofrealestateandtherelatedfinancialfactorsaswellasanextensivedatabaseonregionalsubmarketsThroughapan-AsianandglobalnetworkofinterdisciplinaryprofessionalsKPMGfirms offer real estate and construction related services across the spectrum oftheindustryKPMGprofessionalsoffervaluableinsightinrealestateandconstructionrelatedissuesbasedontheirextensiveknowledgeandexperienceintheindustry
Andrew Weir
GlobalChairRealEstateandConstruction
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FormanyyearsAustraliahasmaintainedathincapitalisationtaxregimetoimposeacaponthemaximumamountofdeductibledebtwhichcouldbeborrowedbyAustraliantaxpayersBothforeigninvestorslookingtomakeAustralianacquisitions and also Australian outbound investors must pay carefulattentiontotheserulesinstructuringacquisitionsRecentannouncementsbytheFederalGovernment1 in this areawillimpactthestructureoffutureacquisitionsandrequireananalysisofexistinginvestmentstoconfirmwhethertheywillcomplywiththenewlawgoingforward
What are the changesInaannouncementmadeinconjunctionwithAustraliarsquosmostrecentFederalBudgetinMay2013therewillbeanumberofchangestothethincapitalisationrulesAdditionalproposedchangestoAustraliarsquostransferpricingrulesareexpectedtofurtherimpactinvestmentstructures
AustraliarsquosexistingthincapitalisationregimeincludesarsquosafeharbourrsquoprovisionwhicheffectivelyenablesAustraliataxpayerstoapplya7525debttoequityratioTheratioismodifiedforbanksandnon-bankfinancialentitiestoalignwithbankingcapitalrequirementsThereisalsoprovisionforadditionaldebtinexcessofthesafeharbourprovisionwhereitcanbeshowntheborrowingsarecomparabletoindependentcommercialarrangementsandhencesatisfythersquoarmrsquos-lengthrsquotestFinallyoutboundinvestorsarealsoabletoaccessarsquoworldwidegearingrsquotestwhichpermitsgearingtotheleveloftheworldwidegroupofwhichtheentityisamember
TheMay2013announcementswillreducethesafeharbourrationto6040ThetestappliestoallAustraliantaxpayersthataresubjecttothincapitalisationandtoalldebtndashbothexternalandrelatedpartydebtTheannouncementispremised on the basis that the current safe harbour rules are overlygenerouswhencomparedwithcomparableforeignjurisdictionsInfactalargenumberofforeignjurisdictionsonly apply the rules to related party debt and hence the validityofthisstatementisquestionableThenewrulesareintendedtoapplyforthefirsttaxyearcommencingonorafter1July2014andmostimportantlywillapplytoexistingdebtaswellasfuturedebtInotherwordstaxpayerswillneedtogivecarefulconsiderationtotheirexistingfinancingstructurestoconfirmwhethertheywillcontinuetocomplywiththerulesasamendedIftherulesarebreachedthenadeductionwillbedeniedforinterestpaidtonon-residentsondebttotheextentitisinexcessoftherelevantcapItshouldbenotedthatsuchinterestwouldcontinuetobesubjecttoa10percentwithholdingtaxnotwithstandingitsnon-deductibility
While the safe harbour test is conveniently referred to as a debt to equity ratio the actual application of the test requires acomparisonbetweentheaveragevalueofthedebtforarelevantyearandtheaveragevalueofthetaxpayerrsquosassetsforthesameyearThisisasubtledistinctiongiventhatassetvalues(andhencethemaximumcapfordebt)willfluctuateovertimeNotethattheaveragevaluecanbecalculatedbyreferencetotheopeningandclosingbalancesfortheparticularyearorbywayofotherstipulatedalternativesattheelectionofthetaxpayer
WithoutgoingthroughthecompleteintricaciesofacomplicatedformulathesafeharbourdebtcommenceswithameasurementoftheaveragevalueofthetaxpayersassetsTotalaverageassetsarethenreducedbynon-debtliabilitiesandotherspecificitemstoisolatethevalueoftheentityrsquosAustralianassetsuponwhichthincapitalisationcalculationsarebasedAssetsandliabilitiesaredeterminedbyreferencetoAustralianaccountingstandardsandthecalculationsmustcomplywiththosestandards
Clearlyitisessentialtoensureproperrecognitionofallassets(includingspecifiedintangiblesthatcanberevaluedforthesepurposes)whichcanbetakenintoaccountforthepurposesofthiscalculationTherequirementtocomplywithaccountingstandardsismodifiedincertaincasesForexampledeferredtaxassetsliabilitiesarenotrecognisedforthepurposesofthecalculationwhereastherecanberecognitionofcertaininternallygeneratedintangibleitemsTherearealsoparticularrulesaroundvaluationofassetsItcanbeseenthatacomprehensivesafeharbourcalculationparticularlywithregardstothetighteningintheratiorequiresnotonlydetailedtaxadvicebutalsotheappropriateaccountinginputGiventhereductionthesafeharbourpotentialavenuestobeexploredincluderevaluingtangibleandcertainintangibleassetsconvertingdebttoequityorinjectingfurthercapital
Armrsquos-length testIfthesafeharbourprovisionswillbebreachedthenoneshouldconsiderwhetherthearmrsquos-lengthtestmayapplytoenableadeductionfortheinterestontheexcessdebtamountTheMay2013announcementsstatedthatthearmrsquos-lengthtestwillbereferredtotheBoardofTaxationldquotoconsultonwaystomakethearmrsquos-lengthtestmoreeffectivebyreducingcompliancecostsandmakingiteasierfortheAustralianTaxationOfficetoadministerwhilehavingregardtothepolicyobjectiveofthethincapitulationrulesrdquo2ThereisageneralmarketconcernthatthetestwillbesignificantlycurtailedfollowingtheperiodofconsultationInterestinglytheBoardofTaxationisnotduetoreportbackonitsworkuntilDecember2014ndashsixmonthsaftertheintroductionofthenewsafeharbourprovisionsThiswillposeasignificant
Australia
Tightening of debt deductibility rules
1 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
2 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
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challengefortaxpayerswhoexceedthereducedsafeharbourdebtamountbutsatisfythecurrentarmrsquos-lengthtestprovisionsndashwilltheyalsosatisfythoseprovisionsfollowinganysubsequentchangesfollowingtheBoardofTaxationreport
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
UnderAustraliarsquoscurrentlawthetaxpayeriseffectivelyprotectedagainsttheimpositionofculpabilitypenaltiesintheeventofasuccessfulTaxOfficechallengetoitspositionprovidedthetaxpayercanestablishithasaReasonableArguablePosition(RAP)ThishasbeenanimportantfoundationoftheAustraliantaxlawformanyyearswhichisintendedtoapplywherethepositionadoptedbythetaxpayerisatleastaslikelyasnottobecorrect
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
3 ldquoTaxLawsAmendment(CounteringTaxAvoidanceandMultinationalProfitShifting)Bill2013rdquoAustralianTaxOfficesndashAustralianGovernment29June2013
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China
Impact of Chinarsquos VAT reforms on the hospitality sector
TheChineseGovernmentiscurrentlyembarkingonanambitiousreformprogramforitsindirecttaxsystemtheobjectiveistoreplacethecurrentdualsystemofindirecttaxesndashValueAddedTax(VAT)andBusinessTax(BT)ndashwithasingleVATsystemwhichappliestothewholeofthegoodsandservicessector
ThereformprocessisbeingimplementedprogressivelyoveraperiodoftimewithBTbeingreplacedbyVATonasector-by-sectorandprovince-by-provincebasisItcommencedinShanghaion1January2012withthetransitiontoVATforthelsquomodernservicesrsquoandtransportationsectorsThatinitialphaseoftheVATpilotprogramhasrecentlybeencompletednationwideandattentionisnowturningtotheremainingsectorsoftheeconomyyettotransitiontoVAT
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
OneassetclasswithinthissectoristhehospitalityindustryThisisundoubtedlyanareaofsignificantforeigninvestmentgiventheproliferationofmajorinternationalhotelbrandsenteringtheChinesemarketandtheirincreasedexpansionintoso-called2ndand3rdtiercities
InthisarticlewetakeabrieflookatthepotentialimplicationsoftheVATreformsonthehospitalitysectorTheobservationscontained in this article are based in part on consultation discussionsbetweenKPMGChinaandChinarsquosMinistryofFinance(MoF)HowevertheproposalsdiscussedherearenotthesubjectofanyformalannouncementandarethereforehighlysusceptibletochangeForconveniencetheanalysisissplitbetweenthemainimplicationsforhotelownersascomparedwithhotelbrandsgiventhatinmanycasestheyaresubjecttoseparateownershipstructures
Hotel owners ndash development phaseBasedonthemostrecentdiscussionswiththeMoFthegovernmentisproposingtoapplyan11percentVATratetoboth the construction and real estate sectors sometime during2014ThismeansthatprospectivehotelownerswillneedtofactorVATintotheirforwardbudgetingprojectionsboth in respect of the purchase of any real estate for developmentpurposesandforconstruction
Whereahotelistobedevelopedinitiallythroughthepurchaseoflanduserightsitisnotexpectedthatthis
transactionwillbesubjecttoVATgiventheacquisitionisfromthelocalgovernmentauthorityHoweverthesubsequentdevelopmentonthelandisexpectedtoincurVATontheconstructionservicesattherateof11percentinplaceoftheexisting3percentBTrateHotelownerswillneedtoensuretheyfactorthishigherrateintocashflowprojectionsbecausealthoughtheVATiscreditablethereisgenerallynoentitlementtoarefundofexcessinputVATcreditsinChinaConsequentlyduringthedevelopmentphaseofaprojecthotelownerswillbeexpectedtogeneratesignificantinputVATcreditbalanceswhichcanbecarriedforwardindefinitelyandoffsetagainstoutputVATinthefutureThismaytakeseveralyears
ForexistinghotelownersthetimingofanymajorrenovationprojectsshouldbecarefullyconsideredForexamplearenovationprojectundertakennowwouldbesubjecttoBTattherateof3percentandanyoftheVATincurredonthematerialsusedintherenovationisnotcreditableHoweveroncetheVATreformsapplytothehospitalitysectortheinputVATonthosematerialswouldgenerallybecreditabletherebypotentiallyreducingtheoverallcost
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AkeyissueforhotelownerswillbetoeffectivelymanagethetransitiontoVATDuetotheprevalenceofforwardbookings12monthsinadvanceinsomecasestheVATimpactneedstobefactoredintodecision-makingwellinadvanceIfnothotelownersmaybelefttobearanirrecoverableVATliabilityThegovernmenthasnotcurrentlyprovidedotherindustrieswithbroadgrandfatheringreliefforexistingcontractsenteredintopriortothecommencementoftheVATreformssohotelownersshouldnotassumeitwillbeforthcoming
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
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OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
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FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
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l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
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tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
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tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
with
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ch t
he in
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nden
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he K
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are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
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013
KP
MG
Inte
rnat
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pera
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PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
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(ldquoK
PM
G In
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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ch t
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he K
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iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
with
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ch t
he in
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nden
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of t
he K
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iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
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013
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MG
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rnat
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tive
(ldquoK
PM
G In
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atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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rnat
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pera
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PM
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atio
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rovi
des
no c
lient
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vice
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d is
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he in
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nden
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ms
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he K
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iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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atio
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rovi
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no c
lient
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vice
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d is
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he K
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affil
iate
d
AsianRealSnapShotOctober201329
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013
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PM
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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ch t
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nden
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ms
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he K
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ork
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affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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rovi
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lient
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
October 2013
Introduction
WelcometothesecondeditionofKPMGrsquosAsianRealEstatesnapshotInthiseditionthefocusisontheregionrsquosdifferinggovernmentpoliciesimplementedandtheeffectsithasonrealestateinvestmentinAsiaPacificFromHongKongrsquosintroductionofaseriesofmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationtoIndiarsquosgovernmentreformsthesechangesareaimedatcreatingastabilisedgrowthoftherealestatemarketintheregion
ThisdocumentispreparedbyanetworkofseasonedKPMGprofessionalsalignedtodifferentfunctionalgroupswithinAsiaAllhaveadeepunderstandingregardingthecomplexnatureoftheregionalrealestatemarketsKPMGRealEstatehasprofessionalexperienceandanunderstandingofrealestateandtherelatedfinancialfactorsaswellasanextensivedatabaseonregionalsubmarketsThroughapan-AsianandglobalnetworkofinterdisciplinaryprofessionalsKPMGfirms offer real estate and construction related services across the spectrum oftheindustryKPMGprofessionalsoffervaluableinsightinrealestateandconstructionrelatedissuesbasedontheirextensiveknowledgeandexperienceintheindustry
Andrew Weir
GlobalChairRealEstateandConstruction
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AsianRealSnapShotOctober20133
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FormanyyearsAustraliahasmaintainedathincapitalisationtaxregimetoimposeacaponthemaximumamountofdeductibledebtwhichcouldbeborrowedbyAustraliantaxpayersBothforeigninvestorslookingtomakeAustralianacquisitions and also Australian outbound investors must pay carefulattentiontotheserulesinstructuringacquisitionsRecentannouncementsbytheFederalGovernment1 in this areawillimpactthestructureoffutureacquisitionsandrequireananalysisofexistinginvestmentstoconfirmwhethertheywillcomplywiththenewlawgoingforward
What are the changesInaannouncementmadeinconjunctionwithAustraliarsquosmostrecentFederalBudgetinMay2013therewillbeanumberofchangestothethincapitalisationrulesAdditionalproposedchangestoAustraliarsquostransferpricingrulesareexpectedtofurtherimpactinvestmentstructures
AustraliarsquosexistingthincapitalisationregimeincludesarsquosafeharbourrsquoprovisionwhicheffectivelyenablesAustraliataxpayerstoapplya7525debttoequityratioTheratioismodifiedforbanksandnon-bankfinancialentitiestoalignwithbankingcapitalrequirementsThereisalsoprovisionforadditionaldebtinexcessofthesafeharbourprovisionwhereitcanbeshowntheborrowingsarecomparabletoindependentcommercialarrangementsandhencesatisfythersquoarmrsquos-lengthrsquotestFinallyoutboundinvestorsarealsoabletoaccessarsquoworldwidegearingrsquotestwhichpermitsgearingtotheleveloftheworldwidegroupofwhichtheentityisamember
TheMay2013announcementswillreducethesafeharbourrationto6040ThetestappliestoallAustraliantaxpayersthataresubjecttothincapitalisationandtoalldebtndashbothexternalandrelatedpartydebtTheannouncementispremised on the basis that the current safe harbour rules are overlygenerouswhencomparedwithcomparableforeignjurisdictionsInfactalargenumberofforeignjurisdictionsonly apply the rules to related party debt and hence the validityofthisstatementisquestionableThenewrulesareintendedtoapplyforthefirsttaxyearcommencingonorafter1July2014andmostimportantlywillapplytoexistingdebtaswellasfuturedebtInotherwordstaxpayerswillneedtogivecarefulconsiderationtotheirexistingfinancingstructurestoconfirmwhethertheywillcontinuetocomplywiththerulesasamendedIftherulesarebreachedthenadeductionwillbedeniedforinterestpaidtonon-residentsondebttotheextentitisinexcessoftherelevantcapItshouldbenotedthatsuchinterestwouldcontinuetobesubjecttoa10percentwithholdingtaxnotwithstandingitsnon-deductibility
While the safe harbour test is conveniently referred to as a debt to equity ratio the actual application of the test requires acomparisonbetweentheaveragevalueofthedebtforarelevantyearandtheaveragevalueofthetaxpayerrsquosassetsforthesameyearThisisasubtledistinctiongiventhatassetvalues(andhencethemaximumcapfordebt)willfluctuateovertimeNotethattheaveragevaluecanbecalculatedbyreferencetotheopeningandclosingbalancesfortheparticularyearorbywayofotherstipulatedalternativesattheelectionofthetaxpayer
WithoutgoingthroughthecompleteintricaciesofacomplicatedformulathesafeharbourdebtcommenceswithameasurementoftheaveragevalueofthetaxpayersassetsTotalaverageassetsarethenreducedbynon-debtliabilitiesandotherspecificitemstoisolatethevalueoftheentityrsquosAustralianassetsuponwhichthincapitalisationcalculationsarebasedAssetsandliabilitiesaredeterminedbyreferencetoAustralianaccountingstandardsandthecalculationsmustcomplywiththosestandards
Clearlyitisessentialtoensureproperrecognitionofallassets(includingspecifiedintangiblesthatcanberevaluedforthesepurposes)whichcanbetakenintoaccountforthepurposesofthiscalculationTherequirementtocomplywithaccountingstandardsismodifiedincertaincasesForexampledeferredtaxassetsliabilitiesarenotrecognisedforthepurposesofthecalculationwhereastherecanberecognitionofcertaininternallygeneratedintangibleitemsTherearealsoparticularrulesaroundvaluationofassetsItcanbeseenthatacomprehensivesafeharbourcalculationparticularlywithregardstothetighteningintheratiorequiresnotonlydetailedtaxadvicebutalsotheappropriateaccountinginputGiventhereductionthesafeharbourpotentialavenuestobeexploredincluderevaluingtangibleandcertainintangibleassetsconvertingdebttoequityorinjectingfurthercapital
Armrsquos-length testIfthesafeharbourprovisionswillbebreachedthenoneshouldconsiderwhetherthearmrsquos-lengthtestmayapplytoenableadeductionfortheinterestontheexcessdebtamountTheMay2013announcementsstatedthatthearmrsquos-lengthtestwillbereferredtotheBoardofTaxationldquotoconsultonwaystomakethearmrsquos-lengthtestmoreeffectivebyreducingcompliancecostsandmakingiteasierfortheAustralianTaxationOfficetoadministerwhilehavingregardtothepolicyobjectiveofthethincapitulationrulesrdquo2ThereisageneralmarketconcernthatthetestwillbesignificantlycurtailedfollowingtheperiodofconsultationInterestinglytheBoardofTaxationisnotduetoreportbackonitsworkuntilDecember2014ndashsixmonthsaftertheintroductionofthenewsafeharbourprovisionsThiswillposeasignificant
Australia
Tightening of debt deductibility rules
1 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
2 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
4AsianRealSnapShotOctober2013
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challengefortaxpayerswhoexceedthereducedsafeharbourdebtamountbutsatisfythecurrentarmrsquos-lengthtestprovisionsndashwilltheyalsosatisfythoseprovisionsfollowinganysubsequentchangesfollowingtheBoardofTaxationreport
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
UnderAustraliarsquoscurrentlawthetaxpayeriseffectivelyprotectedagainsttheimpositionofculpabilitypenaltiesintheeventofasuccessfulTaxOfficechallengetoitspositionprovidedthetaxpayercanestablishithasaReasonableArguablePosition(RAP)ThishasbeenanimportantfoundationoftheAustraliantaxlawformanyyearswhichisintendedtoapplywherethepositionadoptedbythetaxpayerisatleastaslikelyasnottobecorrect
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
3 ldquoTaxLawsAmendment(CounteringTaxAvoidanceandMultinationalProfitShifting)Bill2013rdquoAustralianTaxOfficesndashAustralianGovernment29June2013
AsianRealSnapShotOctober20135
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China
Impact of Chinarsquos VAT reforms on the hospitality sector
TheChineseGovernmentiscurrentlyembarkingonanambitiousreformprogramforitsindirecttaxsystemtheobjectiveistoreplacethecurrentdualsystemofindirecttaxesndashValueAddedTax(VAT)andBusinessTax(BT)ndashwithasingleVATsystemwhichappliestothewholeofthegoodsandservicessector
ThereformprocessisbeingimplementedprogressivelyoveraperiodoftimewithBTbeingreplacedbyVATonasector-by-sectorandprovince-by-provincebasisItcommencedinShanghaion1January2012withthetransitiontoVATforthelsquomodernservicesrsquoandtransportationsectorsThatinitialphaseoftheVATpilotprogramhasrecentlybeencompletednationwideandattentionisnowturningtotheremainingsectorsoftheeconomyyettotransitiontoVAT
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
OneassetclasswithinthissectoristhehospitalityindustryThisisundoubtedlyanareaofsignificantforeigninvestmentgiventheproliferationofmajorinternationalhotelbrandsenteringtheChinesemarketandtheirincreasedexpansionintoso-called2ndand3rdtiercities
InthisarticlewetakeabrieflookatthepotentialimplicationsoftheVATreformsonthehospitalitysectorTheobservationscontained in this article are based in part on consultation discussionsbetweenKPMGChinaandChinarsquosMinistryofFinance(MoF)HowevertheproposalsdiscussedherearenotthesubjectofanyformalannouncementandarethereforehighlysusceptibletochangeForconveniencetheanalysisissplitbetweenthemainimplicationsforhotelownersascomparedwithhotelbrandsgiventhatinmanycasestheyaresubjecttoseparateownershipstructures
Hotel owners ndash development phaseBasedonthemostrecentdiscussionswiththeMoFthegovernmentisproposingtoapplyan11percentVATratetoboth the construction and real estate sectors sometime during2014ThismeansthatprospectivehotelownerswillneedtofactorVATintotheirforwardbudgetingprojectionsboth in respect of the purchase of any real estate for developmentpurposesandforconstruction
Whereahotelistobedevelopedinitiallythroughthepurchaseoflanduserightsitisnotexpectedthatthis
transactionwillbesubjecttoVATgiventheacquisitionisfromthelocalgovernmentauthorityHoweverthesubsequentdevelopmentonthelandisexpectedtoincurVATontheconstructionservicesattherateof11percentinplaceoftheexisting3percentBTrateHotelownerswillneedtoensuretheyfactorthishigherrateintocashflowprojectionsbecausealthoughtheVATiscreditablethereisgenerallynoentitlementtoarefundofexcessinputVATcreditsinChinaConsequentlyduringthedevelopmentphaseofaprojecthotelownerswillbeexpectedtogeneratesignificantinputVATcreditbalanceswhichcanbecarriedforwardindefinitelyandoffsetagainstoutputVATinthefutureThismaytakeseveralyears
ForexistinghotelownersthetimingofanymajorrenovationprojectsshouldbecarefullyconsideredForexamplearenovationprojectundertakennowwouldbesubjecttoBTattherateof3percentandanyoftheVATincurredonthematerialsusedintherenovationisnotcreditableHoweveroncetheVATreformsapplytothehospitalitysectortheinputVATonthosematerialswouldgenerallybecreditabletherebypotentiallyreducingtheoverallcost
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AkeyissueforhotelownerswillbetoeffectivelymanagethetransitiontoVATDuetotheprevalenceofforwardbookings12monthsinadvanceinsomecasestheVATimpactneedstobefactoredintodecision-makingwellinadvanceIfnothotelownersmaybelefttobearanirrecoverableVATliabilityThegovernmenthasnotcurrentlyprovidedotherindustrieswithbroadgrandfatheringreliefforexistingcontractsenteredintopriortothecommencementoftheVATreformssohotelownersshouldnotassumeitwillbeforthcoming
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
6AsianRealSnapShotOctober2013
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lient
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AsianRealSnapShotOctober20137
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
8AsianRealSnapShotOctober2013
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OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
10AsianRealSnapShotOctober2013
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bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
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tern
atio
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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ch t
he in
depe
nden
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ms
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he K
PM
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ork
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affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
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rovi
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no c
lient
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d is
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ch t
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nden
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he K
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26AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
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PM
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tern
atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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ch t
he in
depe
nden
t m
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r fir
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he K
PM
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iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
Inte
rnat
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pera
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PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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ch t
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nden
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he K
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iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
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tive
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PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
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ch t
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ms
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he K
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affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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PM
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rovi
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no c
lient
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vice
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iate
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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rovi
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vice
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
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KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
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KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
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AsianRealSnapShotOctober20133
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MG
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rovi
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lient
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FormanyyearsAustraliahasmaintainedathincapitalisationtaxregimetoimposeacaponthemaximumamountofdeductibledebtwhichcouldbeborrowedbyAustraliantaxpayersBothforeigninvestorslookingtomakeAustralianacquisitions and also Australian outbound investors must pay carefulattentiontotheserulesinstructuringacquisitionsRecentannouncementsbytheFederalGovernment1 in this areawillimpactthestructureoffutureacquisitionsandrequireananalysisofexistinginvestmentstoconfirmwhethertheywillcomplywiththenewlawgoingforward
What are the changesInaannouncementmadeinconjunctionwithAustraliarsquosmostrecentFederalBudgetinMay2013therewillbeanumberofchangestothethincapitalisationrulesAdditionalproposedchangestoAustraliarsquostransferpricingrulesareexpectedtofurtherimpactinvestmentstructures
AustraliarsquosexistingthincapitalisationregimeincludesarsquosafeharbourrsquoprovisionwhicheffectivelyenablesAustraliataxpayerstoapplya7525debttoequityratioTheratioismodifiedforbanksandnon-bankfinancialentitiestoalignwithbankingcapitalrequirementsThereisalsoprovisionforadditionaldebtinexcessofthesafeharbourprovisionwhereitcanbeshowntheborrowingsarecomparabletoindependentcommercialarrangementsandhencesatisfythersquoarmrsquos-lengthrsquotestFinallyoutboundinvestorsarealsoabletoaccessarsquoworldwidegearingrsquotestwhichpermitsgearingtotheleveloftheworldwidegroupofwhichtheentityisamember
TheMay2013announcementswillreducethesafeharbourrationto6040ThetestappliestoallAustraliantaxpayersthataresubjecttothincapitalisationandtoalldebtndashbothexternalandrelatedpartydebtTheannouncementispremised on the basis that the current safe harbour rules are overlygenerouswhencomparedwithcomparableforeignjurisdictionsInfactalargenumberofforeignjurisdictionsonly apply the rules to related party debt and hence the validityofthisstatementisquestionableThenewrulesareintendedtoapplyforthefirsttaxyearcommencingonorafter1July2014andmostimportantlywillapplytoexistingdebtaswellasfuturedebtInotherwordstaxpayerswillneedtogivecarefulconsiderationtotheirexistingfinancingstructurestoconfirmwhethertheywillcontinuetocomplywiththerulesasamendedIftherulesarebreachedthenadeductionwillbedeniedforinterestpaidtonon-residentsondebttotheextentitisinexcessoftherelevantcapItshouldbenotedthatsuchinterestwouldcontinuetobesubjecttoa10percentwithholdingtaxnotwithstandingitsnon-deductibility
While the safe harbour test is conveniently referred to as a debt to equity ratio the actual application of the test requires acomparisonbetweentheaveragevalueofthedebtforarelevantyearandtheaveragevalueofthetaxpayerrsquosassetsforthesameyearThisisasubtledistinctiongiventhatassetvalues(andhencethemaximumcapfordebt)willfluctuateovertimeNotethattheaveragevaluecanbecalculatedbyreferencetotheopeningandclosingbalancesfortheparticularyearorbywayofotherstipulatedalternativesattheelectionofthetaxpayer
WithoutgoingthroughthecompleteintricaciesofacomplicatedformulathesafeharbourdebtcommenceswithameasurementoftheaveragevalueofthetaxpayersassetsTotalaverageassetsarethenreducedbynon-debtliabilitiesandotherspecificitemstoisolatethevalueoftheentityrsquosAustralianassetsuponwhichthincapitalisationcalculationsarebasedAssetsandliabilitiesaredeterminedbyreferencetoAustralianaccountingstandardsandthecalculationsmustcomplywiththosestandards
Clearlyitisessentialtoensureproperrecognitionofallassets(includingspecifiedintangiblesthatcanberevaluedforthesepurposes)whichcanbetakenintoaccountforthepurposesofthiscalculationTherequirementtocomplywithaccountingstandardsismodifiedincertaincasesForexampledeferredtaxassetsliabilitiesarenotrecognisedforthepurposesofthecalculationwhereastherecanberecognitionofcertaininternallygeneratedintangibleitemsTherearealsoparticularrulesaroundvaluationofassetsItcanbeseenthatacomprehensivesafeharbourcalculationparticularlywithregardstothetighteningintheratiorequiresnotonlydetailedtaxadvicebutalsotheappropriateaccountinginputGiventhereductionthesafeharbourpotentialavenuestobeexploredincluderevaluingtangibleandcertainintangibleassetsconvertingdebttoequityorinjectingfurthercapital
Armrsquos-length testIfthesafeharbourprovisionswillbebreachedthenoneshouldconsiderwhetherthearmrsquos-lengthtestmayapplytoenableadeductionfortheinterestontheexcessdebtamountTheMay2013announcementsstatedthatthearmrsquos-lengthtestwillbereferredtotheBoardofTaxationldquotoconsultonwaystomakethearmrsquos-lengthtestmoreeffectivebyreducingcompliancecostsandmakingiteasierfortheAustralianTaxationOfficetoadministerwhilehavingregardtothepolicyobjectiveofthethincapitulationrulesrdquo2ThereisageneralmarketconcernthatthetestwillbesignificantlycurtailedfollowingtheperiodofconsultationInterestinglytheBoardofTaxationisnotduetoreportbackonitsworkuntilDecember2014ndashsixmonthsaftertheintroductionofthenewsafeharbourprovisionsThiswillposeasignificant
Australia
Tightening of debt deductibility rules
1 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
2 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
4AsianRealSnapShotOctober2013
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challengefortaxpayerswhoexceedthereducedsafeharbourdebtamountbutsatisfythecurrentarmrsquos-lengthtestprovisionsndashwilltheyalsosatisfythoseprovisionsfollowinganysubsequentchangesfollowingtheBoardofTaxationreport
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
UnderAustraliarsquoscurrentlawthetaxpayeriseffectivelyprotectedagainsttheimpositionofculpabilitypenaltiesintheeventofasuccessfulTaxOfficechallengetoitspositionprovidedthetaxpayercanestablishithasaReasonableArguablePosition(RAP)ThishasbeenanimportantfoundationoftheAustraliantaxlawformanyyearswhichisintendedtoapplywherethepositionadoptedbythetaxpayerisatleastaslikelyasnottobecorrect
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
3 ldquoTaxLawsAmendment(CounteringTaxAvoidanceandMultinationalProfitShifting)Bill2013rdquoAustralianTaxOfficesndashAustralianGovernment29June2013
AsianRealSnapShotOctober20135
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China
Impact of Chinarsquos VAT reforms on the hospitality sector
TheChineseGovernmentiscurrentlyembarkingonanambitiousreformprogramforitsindirecttaxsystemtheobjectiveistoreplacethecurrentdualsystemofindirecttaxesndashValueAddedTax(VAT)andBusinessTax(BT)ndashwithasingleVATsystemwhichappliestothewholeofthegoodsandservicessector
ThereformprocessisbeingimplementedprogressivelyoveraperiodoftimewithBTbeingreplacedbyVATonasector-by-sectorandprovince-by-provincebasisItcommencedinShanghaion1January2012withthetransitiontoVATforthelsquomodernservicesrsquoandtransportationsectorsThatinitialphaseoftheVATpilotprogramhasrecentlybeencompletednationwideandattentionisnowturningtotheremainingsectorsoftheeconomyyettotransitiontoVAT
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
OneassetclasswithinthissectoristhehospitalityindustryThisisundoubtedlyanareaofsignificantforeigninvestmentgiventheproliferationofmajorinternationalhotelbrandsenteringtheChinesemarketandtheirincreasedexpansionintoso-called2ndand3rdtiercities
InthisarticlewetakeabrieflookatthepotentialimplicationsoftheVATreformsonthehospitalitysectorTheobservationscontained in this article are based in part on consultation discussionsbetweenKPMGChinaandChinarsquosMinistryofFinance(MoF)HowevertheproposalsdiscussedherearenotthesubjectofanyformalannouncementandarethereforehighlysusceptibletochangeForconveniencetheanalysisissplitbetweenthemainimplicationsforhotelownersascomparedwithhotelbrandsgiventhatinmanycasestheyaresubjecttoseparateownershipstructures
Hotel owners ndash development phaseBasedonthemostrecentdiscussionswiththeMoFthegovernmentisproposingtoapplyan11percentVATratetoboth the construction and real estate sectors sometime during2014ThismeansthatprospectivehotelownerswillneedtofactorVATintotheirforwardbudgetingprojectionsboth in respect of the purchase of any real estate for developmentpurposesandforconstruction
Whereahotelistobedevelopedinitiallythroughthepurchaseoflanduserightsitisnotexpectedthatthis
transactionwillbesubjecttoVATgiventheacquisitionisfromthelocalgovernmentauthorityHoweverthesubsequentdevelopmentonthelandisexpectedtoincurVATontheconstructionservicesattherateof11percentinplaceoftheexisting3percentBTrateHotelownerswillneedtoensuretheyfactorthishigherrateintocashflowprojectionsbecausealthoughtheVATiscreditablethereisgenerallynoentitlementtoarefundofexcessinputVATcreditsinChinaConsequentlyduringthedevelopmentphaseofaprojecthotelownerswillbeexpectedtogeneratesignificantinputVATcreditbalanceswhichcanbecarriedforwardindefinitelyandoffsetagainstoutputVATinthefutureThismaytakeseveralyears
ForexistinghotelownersthetimingofanymajorrenovationprojectsshouldbecarefullyconsideredForexamplearenovationprojectundertakennowwouldbesubjecttoBTattherateof3percentandanyoftheVATincurredonthematerialsusedintherenovationisnotcreditableHoweveroncetheVATreformsapplytothehospitalitysectortheinputVATonthosematerialswouldgenerallybecreditabletherebypotentiallyreducingtheoverallcost
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AkeyissueforhotelownerswillbetoeffectivelymanagethetransitiontoVATDuetotheprevalenceofforwardbookings12monthsinadvanceinsomecasestheVATimpactneedstobefactoredintodecision-makingwellinadvanceIfnothotelownersmaybelefttobearanirrecoverableVATliabilityThegovernmenthasnotcurrentlyprovidedotherindustrieswithbroadgrandfatheringreliefforexistingcontractsenteredintopriortothecommencementoftheVATreformssohotelownersshouldnotassumeitwillbeforthcoming
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
6AsianRealSnapShotOctober2013
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AsianRealSnapShotOctober20137
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
8AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
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nden
t m
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ms
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he K
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ork
are
affil
iate
d
OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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013
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MG
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rnat
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(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
with
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ch t
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nden
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of t
he K
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ork
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affil
iate
d
FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
10AsianRealSnapShotOctober2013
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013
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G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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ch t
he in
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he K
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affil
iate
d
bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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013
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
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vice
s an
d is
a S
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nden
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he K
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affil
iate
d
Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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013
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rovi
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lient
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vice
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d is
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iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
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G In
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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nden
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India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
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013
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PM
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G In
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rovi
des
no c
lient
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vice
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d is
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GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
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013
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pera
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PM
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G In
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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MG
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atio
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rovi
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no c
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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rnat
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atio
nal p
rovi
des
no c
lient
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vice
s an
d is
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ch t
he in
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nden
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he K
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26AsianRealSnapShotOctober2013
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013
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MG
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PM
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atio
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rovi
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no c
lient
ser
vice
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d is
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ch t
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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rnat
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pera
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PM
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atio
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PM
G In
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atio
nal p
rovi
des
no c
lient
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vice
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d is
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nden
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he K
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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atio
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atio
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rovi
des
no c
lient
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vice
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d is
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nden
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of t
he K
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ork
are
affil
iate
d
AsianRealSnapShotOctober201329
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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no c
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he K
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
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KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
FormanyyearsAustraliahasmaintainedathincapitalisationtaxregimetoimposeacaponthemaximumamountofdeductibledebtwhichcouldbeborrowedbyAustraliantaxpayersBothforeigninvestorslookingtomakeAustralianacquisitions and also Australian outbound investors must pay carefulattentiontotheserulesinstructuringacquisitionsRecentannouncementsbytheFederalGovernment1 in this areawillimpactthestructureoffutureacquisitionsandrequireananalysisofexistinginvestmentstoconfirmwhethertheywillcomplywiththenewlawgoingforward
What are the changesInaannouncementmadeinconjunctionwithAustraliarsquosmostrecentFederalBudgetinMay2013therewillbeanumberofchangestothethincapitalisationrulesAdditionalproposedchangestoAustraliarsquostransferpricingrulesareexpectedtofurtherimpactinvestmentstructures
AustraliarsquosexistingthincapitalisationregimeincludesarsquosafeharbourrsquoprovisionwhicheffectivelyenablesAustraliataxpayerstoapplya7525debttoequityratioTheratioismodifiedforbanksandnon-bankfinancialentitiestoalignwithbankingcapitalrequirementsThereisalsoprovisionforadditionaldebtinexcessofthesafeharbourprovisionwhereitcanbeshowntheborrowingsarecomparabletoindependentcommercialarrangementsandhencesatisfythersquoarmrsquos-lengthrsquotestFinallyoutboundinvestorsarealsoabletoaccessarsquoworldwidegearingrsquotestwhichpermitsgearingtotheleveloftheworldwidegroupofwhichtheentityisamember
TheMay2013announcementswillreducethesafeharbourrationto6040ThetestappliestoallAustraliantaxpayersthataresubjecttothincapitalisationandtoalldebtndashbothexternalandrelatedpartydebtTheannouncementispremised on the basis that the current safe harbour rules are overlygenerouswhencomparedwithcomparableforeignjurisdictionsInfactalargenumberofforeignjurisdictionsonly apply the rules to related party debt and hence the validityofthisstatementisquestionableThenewrulesareintendedtoapplyforthefirsttaxyearcommencingonorafter1July2014andmostimportantlywillapplytoexistingdebtaswellasfuturedebtInotherwordstaxpayerswillneedtogivecarefulconsiderationtotheirexistingfinancingstructurestoconfirmwhethertheywillcontinuetocomplywiththerulesasamendedIftherulesarebreachedthenadeductionwillbedeniedforinterestpaidtonon-residentsondebttotheextentitisinexcessoftherelevantcapItshouldbenotedthatsuchinterestwouldcontinuetobesubjecttoa10percentwithholdingtaxnotwithstandingitsnon-deductibility
While the safe harbour test is conveniently referred to as a debt to equity ratio the actual application of the test requires acomparisonbetweentheaveragevalueofthedebtforarelevantyearandtheaveragevalueofthetaxpayerrsquosassetsforthesameyearThisisasubtledistinctiongiventhatassetvalues(andhencethemaximumcapfordebt)willfluctuateovertimeNotethattheaveragevaluecanbecalculatedbyreferencetotheopeningandclosingbalancesfortheparticularyearorbywayofotherstipulatedalternativesattheelectionofthetaxpayer
WithoutgoingthroughthecompleteintricaciesofacomplicatedformulathesafeharbourdebtcommenceswithameasurementoftheaveragevalueofthetaxpayersassetsTotalaverageassetsarethenreducedbynon-debtliabilitiesandotherspecificitemstoisolatethevalueoftheentityrsquosAustralianassetsuponwhichthincapitalisationcalculationsarebasedAssetsandliabilitiesaredeterminedbyreferencetoAustralianaccountingstandardsandthecalculationsmustcomplywiththosestandards
Clearlyitisessentialtoensureproperrecognitionofallassets(includingspecifiedintangiblesthatcanberevaluedforthesepurposes)whichcanbetakenintoaccountforthepurposesofthiscalculationTherequirementtocomplywithaccountingstandardsismodifiedincertaincasesForexampledeferredtaxassetsliabilitiesarenotrecognisedforthepurposesofthecalculationwhereastherecanberecognitionofcertaininternallygeneratedintangibleitemsTherearealsoparticularrulesaroundvaluationofassetsItcanbeseenthatacomprehensivesafeharbourcalculationparticularlywithregardstothetighteningintheratiorequiresnotonlydetailedtaxadvicebutalsotheappropriateaccountinginputGiventhereductionthesafeharbourpotentialavenuestobeexploredincluderevaluingtangibleandcertainintangibleassetsconvertingdebttoequityorinjectingfurthercapital
Armrsquos-length testIfthesafeharbourprovisionswillbebreachedthenoneshouldconsiderwhetherthearmrsquos-lengthtestmayapplytoenableadeductionfortheinterestontheexcessdebtamountTheMay2013announcementsstatedthatthearmrsquos-lengthtestwillbereferredtotheBoardofTaxationldquotoconsultonwaystomakethearmrsquos-lengthtestmoreeffectivebyreducingcompliancecostsandmakingiteasierfortheAustralianTaxationOfficetoadministerwhilehavingregardtothepolicyobjectiveofthethincapitulationrulesrdquo2ThereisageneralmarketconcernthatthetestwillbesignificantlycurtailedfollowingtheperiodofconsultationInterestinglytheBoardofTaxationisnotduetoreportbackonitsworkuntilDecember2014ndashsixmonthsaftertheintroductionofthenewsafeharbourprovisionsThiswillposeasignificant
Australia
Tightening of debt deductibility rules
1 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
2 ldquoProtectingthecorporatetaxbasefromerosionandloopholes-measuresandconsultationarrangementsrdquoTheTreasuryndashAustralianGovernment14May2013
4AsianRealSnapShotOctober2013
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challengefortaxpayerswhoexceedthereducedsafeharbourdebtamountbutsatisfythecurrentarmrsquos-lengthtestprovisionsndashwilltheyalsosatisfythoseprovisionsfollowinganysubsequentchangesfollowingtheBoardofTaxationreport
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
UnderAustraliarsquoscurrentlawthetaxpayeriseffectivelyprotectedagainsttheimpositionofculpabilitypenaltiesintheeventofasuccessfulTaxOfficechallengetoitspositionprovidedthetaxpayercanestablishithasaReasonableArguablePosition(RAP)ThishasbeenanimportantfoundationoftheAustraliantaxlawformanyyearswhichisintendedtoapplywherethepositionadoptedbythetaxpayerisatleastaslikelyasnottobecorrect
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
3 ldquoTaxLawsAmendment(CounteringTaxAvoidanceandMultinationalProfitShifting)Bill2013rdquoAustralianTaxOfficesndashAustralianGovernment29June2013
AsianRealSnapShotOctober20135
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China
Impact of Chinarsquos VAT reforms on the hospitality sector
TheChineseGovernmentiscurrentlyembarkingonanambitiousreformprogramforitsindirecttaxsystemtheobjectiveistoreplacethecurrentdualsystemofindirecttaxesndashValueAddedTax(VAT)andBusinessTax(BT)ndashwithasingleVATsystemwhichappliestothewholeofthegoodsandservicessector
ThereformprocessisbeingimplementedprogressivelyoveraperiodoftimewithBTbeingreplacedbyVATonasector-by-sectorandprovince-by-provincebasisItcommencedinShanghaion1January2012withthetransitiontoVATforthelsquomodernservicesrsquoandtransportationsectorsThatinitialphaseoftheVATpilotprogramhasrecentlybeencompletednationwideandattentionisnowturningtotheremainingsectorsoftheeconomyyettotransitiontoVAT
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
OneassetclasswithinthissectoristhehospitalityindustryThisisundoubtedlyanareaofsignificantforeigninvestmentgiventheproliferationofmajorinternationalhotelbrandsenteringtheChinesemarketandtheirincreasedexpansionintoso-called2ndand3rdtiercities
InthisarticlewetakeabrieflookatthepotentialimplicationsoftheVATreformsonthehospitalitysectorTheobservationscontained in this article are based in part on consultation discussionsbetweenKPMGChinaandChinarsquosMinistryofFinance(MoF)HowevertheproposalsdiscussedherearenotthesubjectofanyformalannouncementandarethereforehighlysusceptibletochangeForconveniencetheanalysisissplitbetweenthemainimplicationsforhotelownersascomparedwithhotelbrandsgiventhatinmanycasestheyaresubjecttoseparateownershipstructures
Hotel owners ndash development phaseBasedonthemostrecentdiscussionswiththeMoFthegovernmentisproposingtoapplyan11percentVATratetoboth the construction and real estate sectors sometime during2014ThismeansthatprospectivehotelownerswillneedtofactorVATintotheirforwardbudgetingprojectionsboth in respect of the purchase of any real estate for developmentpurposesandforconstruction
Whereahotelistobedevelopedinitiallythroughthepurchaseoflanduserightsitisnotexpectedthatthis
transactionwillbesubjecttoVATgiventheacquisitionisfromthelocalgovernmentauthorityHoweverthesubsequentdevelopmentonthelandisexpectedtoincurVATontheconstructionservicesattherateof11percentinplaceoftheexisting3percentBTrateHotelownerswillneedtoensuretheyfactorthishigherrateintocashflowprojectionsbecausealthoughtheVATiscreditablethereisgenerallynoentitlementtoarefundofexcessinputVATcreditsinChinaConsequentlyduringthedevelopmentphaseofaprojecthotelownerswillbeexpectedtogeneratesignificantinputVATcreditbalanceswhichcanbecarriedforwardindefinitelyandoffsetagainstoutputVATinthefutureThismaytakeseveralyears
ForexistinghotelownersthetimingofanymajorrenovationprojectsshouldbecarefullyconsideredForexamplearenovationprojectundertakennowwouldbesubjecttoBTattherateof3percentandanyoftheVATincurredonthematerialsusedintherenovationisnotcreditableHoweveroncetheVATreformsapplytothehospitalitysectortheinputVATonthosematerialswouldgenerallybecreditabletherebypotentiallyreducingtheoverallcost
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AkeyissueforhotelownerswillbetoeffectivelymanagethetransitiontoVATDuetotheprevalenceofforwardbookings12monthsinadvanceinsomecasestheVATimpactneedstobefactoredintodecision-makingwellinadvanceIfnothotelownersmaybelefttobearanirrecoverableVATliabilityThegovernmenthasnotcurrentlyprovidedotherindustrieswithbroadgrandfatheringreliefforexistingcontractsenteredintopriortothecommencementoftheVATreformssohotelownersshouldnotassumeitwillbeforthcoming
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
6AsianRealSnapShotOctober2013
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
8AsianRealSnapShotOctober2013
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OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
10AsianRealSnapShotOctober2013
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bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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013
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pera
tive
(ldquoK
PM
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tern
atio
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
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nden
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ms
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he K
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iate
d
Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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013
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MG
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rnat
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l Coo
pera
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tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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ork
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affil
iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
with
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ch t
he in
depe
nden
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ms
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he K
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are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
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ch t
he in
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Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
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l Coo
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(ldquoK
PM
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tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
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nden
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he K
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iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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with
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ch t
he in
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nden
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he K
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iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
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013
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MG
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rnat
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(ldquoK
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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with
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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ork
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affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
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r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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G In
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atio
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rovi
des
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lient
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vice
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tity
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he in
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nden
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ms
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iate
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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atio
nal p
rovi
des
no c
lient
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vice
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d is
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ch t
he in
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nden
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he K
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ork
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affil
iate
d
AsianRealSnapShotOctober201329
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013
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rnat
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PM
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atio
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atio
nal p
rovi
des
no c
lient
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vice
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d is
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tity
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ch t
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nden
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ms
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he K
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ork
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affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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rovi
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lient
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
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rovi
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
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challengefortaxpayerswhoexceedthereducedsafeharbourdebtamountbutsatisfythecurrentarmrsquos-lengthtestprovisionsndashwilltheyalsosatisfythoseprovisionsfollowinganysubsequentchangesfollowingtheBoardofTaxationreport
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
UnderAustraliarsquoscurrentlawthetaxpayeriseffectivelyprotectedagainsttheimpositionofculpabilitypenaltiesintheeventofasuccessfulTaxOfficechallengetoitspositionprovidedthetaxpayercanestablishithasaReasonableArguablePosition(RAP)ThishasbeenanimportantfoundationoftheAustraliantaxlawformanyyearswhichisintendedtoapplywherethepositionadoptedbythetaxpayerisatleastaslikelyasnottobecorrect
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
3 ldquoTaxLawsAmendment(CounteringTaxAvoidanceandMultinationalProfitShifting)Bill2013rdquoAustralianTaxOfficesndashAustralianGovernment29June2013
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China
Impact of Chinarsquos VAT reforms on the hospitality sector
TheChineseGovernmentiscurrentlyembarkingonanambitiousreformprogramforitsindirecttaxsystemtheobjectiveistoreplacethecurrentdualsystemofindirecttaxesndashValueAddedTax(VAT)andBusinessTax(BT)ndashwithasingleVATsystemwhichappliestothewholeofthegoodsandservicessector
ThereformprocessisbeingimplementedprogressivelyoveraperiodoftimewithBTbeingreplacedbyVATonasector-by-sectorandprovince-by-provincebasisItcommencedinShanghaion1January2012withthetransitiontoVATforthelsquomodernservicesrsquoandtransportationsectorsThatinitialphaseoftheVATpilotprogramhasrecentlybeencompletednationwideandattentionisnowturningtotheremainingsectorsoftheeconomyyettotransitiontoVAT
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
OneassetclasswithinthissectoristhehospitalityindustryThisisundoubtedlyanareaofsignificantforeigninvestmentgiventheproliferationofmajorinternationalhotelbrandsenteringtheChinesemarketandtheirincreasedexpansionintoso-called2ndand3rdtiercities
InthisarticlewetakeabrieflookatthepotentialimplicationsoftheVATreformsonthehospitalitysectorTheobservationscontained in this article are based in part on consultation discussionsbetweenKPMGChinaandChinarsquosMinistryofFinance(MoF)HowevertheproposalsdiscussedherearenotthesubjectofanyformalannouncementandarethereforehighlysusceptibletochangeForconveniencetheanalysisissplitbetweenthemainimplicationsforhotelownersascomparedwithhotelbrandsgiventhatinmanycasestheyaresubjecttoseparateownershipstructures
Hotel owners ndash development phaseBasedonthemostrecentdiscussionswiththeMoFthegovernmentisproposingtoapplyan11percentVATratetoboth the construction and real estate sectors sometime during2014ThismeansthatprospectivehotelownerswillneedtofactorVATintotheirforwardbudgetingprojectionsboth in respect of the purchase of any real estate for developmentpurposesandforconstruction
Whereahotelistobedevelopedinitiallythroughthepurchaseoflanduserightsitisnotexpectedthatthis
transactionwillbesubjecttoVATgiventheacquisitionisfromthelocalgovernmentauthorityHoweverthesubsequentdevelopmentonthelandisexpectedtoincurVATontheconstructionservicesattherateof11percentinplaceoftheexisting3percentBTrateHotelownerswillneedtoensuretheyfactorthishigherrateintocashflowprojectionsbecausealthoughtheVATiscreditablethereisgenerallynoentitlementtoarefundofexcessinputVATcreditsinChinaConsequentlyduringthedevelopmentphaseofaprojecthotelownerswillbeexpectedtogeneratesignificantinputVATcreditbalanceswhichcanbecarriedforwardindefinitelyandoffsetagainstoutputVATinthefutureThismaytakeseveralyears
ForexistinghotelownersthetimingofanymajorrenovationprojectsshouldbecarefullyconsideredForexamplearenovationprojectundertakennowwouldbesubjecttoBTattherateof3percentandanyoftheVATincurredonthematerialsusedintherenovationisnotcreditableHoweveroncetheVATreformsapplytothehospitalitysectortheinputVATonthosematerialswouldgenerallybecreditabletherebypotentiallyreducingtheoverallcost
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AkeyissueforhotelownerswillbetoeffectivelymanagethetransitiontoVATDuetotheprevalenceofforwardbookings12monthsinadvanceinsomecasestheVATimpactneedstobefactoredintodecision-makingwellinadvanceIfnothotelownersmaybelefttobearanirrecoverableVATliabilityThegovernmenthasnotcurrentlyprovidedotherindustrieswithbroadgrandfatheringreliefforexistingcontractsenteredintopriortothecommencementoftheVATreformssohotelownersshouldnotassumeitwillbeforthcoming
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
6AsianRealSnapShotOctober2013
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AsianRealSnapShotOctober20137
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
8AsianRealSnapShotOctober2013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
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nden
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ms
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he K
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ork
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iate
d
OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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013
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MG
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rnat
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(ldquoK
PM
G In
tern
atio
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
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ch t
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nden
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iate
d
FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
10AsianRealSnapShotOctober2013
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013
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G In
tern
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nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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ch t
he in
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he K
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iate
d
bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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013
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G In
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rovi
des
no c
lient
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vice
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d is
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nden
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affil
iate
d
Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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013
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rovi
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lient
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vice
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d is
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percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
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013
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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nden
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India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
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013
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PM
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G In
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rovi
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no c
lient
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vice
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d is
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GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
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MG
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(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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013
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MG
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atio
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rovi
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no c
lient
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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rnat
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PM
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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ch t
he in
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nden
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he K
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26AsianRealSnapShotOctober2013
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013
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MG
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PM
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atio
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G In
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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ch t
he in
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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rnat
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pera
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PM
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atio
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PM
G In
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atio
nal p
rovi
des
no c
lient
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vice
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d is
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nden
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he K
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d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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MG
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atio
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rovi
des
no c
lient
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vice
s an
d is
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he in
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nden
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of t
he K
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ork
are
affil
iate
d
AsianRealSnapShotOctober201329
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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lient
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he K
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
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China
Impact of Chinarsquos VAT reforms on the hospitality sector
TheChineseGovernmentiscurrentlyembarkingonanambitiousreformprogramforitsindirecttaxsystemtheobjectiveistoreplacethecurrentdualsystemofindirecttaxesndashValueAddedTax(VAT)andBusinessTax(BT)ndashwithasingleVATsystemwhichappliestothewholeofthegoodsandservicessector
ThereformprocessisbeingimplementedprogressivelyoveraperiodoftimewithBTbeingreplacedbyVATonasector-by-sectorandprovince-by-provincebasisItcommencedinShanghaion1January2012withthetransitiontoVATforthelsquomodernservicesrsquoandtransportationsectorsThatinitialphaseoftheVATpilotprogramhasrecentlybeencompletednationwideandattentionisnowturningtotheremainingsectorsoftheeconomyyettotransitiontoVAT
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
OneassetclasswithinthissectoristhehospitalityindustryThisisundoubtedlyanareaofsignificantforeigninvestmentgiventheproliferationofmajorinternationalhotelbrandsenteringtheChinesemarketandtheirincreasedexpansionintoso-called2ndand3rdtiercities
InthisarticlewetakeabrieflookatthepotentialimplicationsoftheVATreformsonthehospitalitysectorTheobservationscontained in this article are based in part on consultation discussionsbetweenKPMGChinaandChinarsquosMinistryofFinance(MoF)HowevertheproposalsdiscussedherearenotthesubjectofanyformalannouncementandarethereforehighlysusceptibletochangeForconveniencetheanalysisissplitbetweenthemainimplicationsforhotelownersascomparedwithhotelbrandsgiventhatinmanycasestheyaresubjecttoseparateownershipstructures
Hotel owners ndash development phaseBasedonthemostrecentdiscussionswiththeMoFthegovernmentisproposingtoapplyan11percentVATratetoboth the construction and real estate sectors sometime during2014ThismeansthatprospectivehotelownerswillneedtofactorVATintotheirforwardbudgetingprojectionsboth in respect of the purchase of any real estate for developmentpurposesandforconstruction
Whereahotelistobedevelopedinitiallythroughthepurchaseoflanduserightsitisnotexpectedthatthis
transactionwillbesubjecttoVATgiventheacquisitionisfromthelocalgovernmentauthorityHoweverthesubsequentdevelopmentonthelandisexpectedtoincurVATontheconstructionservicesattherateof11percentinplaceoftheexisting3percentBTrateHotelownerswillneedtoensuretheyfactorthishigherrateintocashflowprojectionsbecausealthoughtheVATiscreditablethereisgenerallynoentitlementtoarefundofexcessinputVATcreditsinChinaConsequentlyduringthedevelopmentphaseofaprojecthotelownerswillbeexpectedtogeneratesignificantinputVATcreditbalanceswhichcanbecarriedforwardindefinitelyandoffsetagainstoutputVATinthefutureThismaytakeseveralyears
ForexistinghotelownersthetimingofanymajorrenovationprojectsshouldbecarefullyconsideredForexamplearenovationprojectundertakennowwouldbesubjecttoBTattherateof3percentandanyoftheVATincurredonthematerialsusedintherenovationisnotcreditableHoweveroncetheVATreformsapplytothehospitalitysectortheinputVATonthosematerialswouldgenerallybecreditabletherebypotentiallyreducingtheoverallcost
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AkeyissueforhotelownerswillbetoeffectivelymanagethetransitiontoVATDuetotheprevalenceofforwardbookings12monthsinadvanceinsomecasestheVATimpactneedstobefactoredintodecision-makingwellinadvanceIfnothotelownersmaybelefttobearanirrecoverableVATliabilityThegovernmenthasnotcurrentlyprovidedotherindustrieswithbroadgrandfatheringreliefforexistingcontractsenteredintopriortothecommencementoftheVATreformssohotelownersshouldnotassumeitwillbeforthcoming
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
6AsianRealSnapShotOctober2013
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
8AsianRealSnapShotOctober2013
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OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
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bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
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percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
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etw
ork
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affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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s en
tity
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
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ork
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affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
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pera
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(ldquoK
PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
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d is
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he K
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d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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rovi
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d is
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26AsianRealSnapShotOctober2013
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MG
Inte
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PM
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PM
G In
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atio
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rovi
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no c
lient
ser
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d is
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ch t
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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PM
G In
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atio
nal p
rovi
des
no c
lient
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vice
s an
d is
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ch t
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nden
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d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
Inte
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tive
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PM
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
with
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ch t
he in
depe
nden
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ms
of t
he K
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are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
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MG
Inte
rnat
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l Coo
pera
tive
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PM
G In
tern
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nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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ms
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he K
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iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
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KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
AsianRealSnapShotOctober20137
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
8AsianRealSnapShotOctober2013
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OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
10AsianRealSnapShotOctober2013
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bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
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rnat
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tive
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PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
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r fir
ms
of t
he K
PM
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ork
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affil
iate
d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
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embe
r fir
ms
of t
he K
PM
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are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
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he K
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AsianRealSnapShotOctober201329
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
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China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
IrrespectiveoftheratewhichischosenakeypointisthattheimpositionofVATwillhaveasignificantimpactonhoteloperationsTheinvoicingsysteminChinaknownasthelsquoGoldenTaxSystemrsquoismanuallydrivenandverylabourintensiveThelikelihoodofanexponentialincreaseinspecialVATinvoicesbeingrequestedbycustomerscoupledwiththecomplexityofpotentiallyhavingdifferentVATratesfordifferentservicesprovidedwithintheonehotelhighlightstheimportanceofhotelownersaddressingtheirITsystemsneedsasamatterofpriority
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
licensingoftrademarkssince1August2013isnowsubjecttoVATattherateof6percentonanationwidebasisasalsquomodernservicersquoBecausehotelownersarenotgenerallysubjecttoVATinrespectoftheiroperationstheVATliabilityiseffectivelyembeddedinthesupplychainHoweveroncethehospitalitysectortransitionstoVATitisexpectedthattheywillbeeligibleforaninputVATcreditforthepurchaseoftheseserviceseffectivelyreducingtheoverallcostSimilarlymanymarketingsupportservicesprovidedbythehotelbrandsarenotcurrentlysubjecttoVATbutthisisexpectedtochangeinthenearfutureOverallthesechangesareexpectedtobebeneficialtothehotelbrandsbecausethepreviousBTsystemwasarealcostintheseB2BtransactionsBycontrasttheVATwillgenerallybefullycreditable
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ConclusionThetransitiontoVATforthehospitalitysectorrepresentsaholisticbusinesschangenotsimplyataxchangeItimpactsseveralfunctionsandpersonnelwithintheoperationofahotelegsalesandmarketingITsystemsandfinanceandlegalEachoftheseteamswillneedtocarefullyconsidertheVATimplicationsdevelopaprojectplanorissuesregisterinconjunctionwiththeiradvisersandprogressivelyworkthroughthechanges
BasedonrecentexperienceinotherindustriesthetimeframeforVATreformimplementationinChinaislikelytobeveryshortWiththereformsexpectedtobeimplementedduring2014youneedtoactnow
8AsianRealSnapShotOctober2013
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OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
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bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
Inte
rnat
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pera
tive
(ldquoK
PM
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tern
atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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AsianRealSnapShotOctober201329
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
OverthelastthreeyearstheHongKongGovernmenthasintroducedanumberofdemand-sidemanagementmeasuresaimedatloweringresidentialpropertypricesandcurbingexcessivespeculationThegovernmenthasstatedthatthemeasuresarenecessaryunderexceptionalcircumstancestoensurethestableandhealthydevelopmentofthemarketandasinterestratesarestilllowandsupplyintheshortrunistighttheriskofapropertybubblecannotbeignored5TheGovernmenthasindicatedthatthemeasureswillbeadjustedorwithdrawnoncethepropertymarkethasregainedsomebalance
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
SubsequentlythegovernmentnotedthatwiththeintroductionofSSDresaleofresidentialpropertieswithin12monthshasvirtuallydisappearedHoweverthenumberoftransactionsforresalebetween12-24monthshadincreasedindicatingthatpropertypriceshaveweakenedthedeterrenteffectofSSD6
Afurtherroundofmeasureswasannouncedon26October2012whichreflectsthegovernmentrsquosintentiontotakefurtheractionifcontinuedinflowsofforeigncapitalintoHongKongfurtherexacerbatedassetpriceinflationThesemeasuresinvolvedanincreaseintherateofSSDandanextensionoftherestrictionperiodInadditionaBuyerrsquosStampDuty(BSD)payablebybuyersofresidentialpropertyinHongKongwasalsoannounced
UndertheadjustedregimeforSSDanyresidentialpropertyacquiredonorafter27October2012eitherbyanindividualoracompany(regardlessofwhereitisincorporated)andresoldwithin36monthswillbesubjecttothenewratesofSSDupontheenactmentoftherelevantlegislationTransactionswhichtookplacebetween20November2010and26October2012willbesubjecttotheoriginalSSDregimeTheSSDpayableforresalewithinsixmonthswillincreaseto20percent15percentifthepropertyisheldformorethansixmonthsbutlessthan12monthsand10percentifthepropertyisheldformorethan12monthsbutlessthan36months
Hong Kong
The Double Stamp Duty
ThesecondmeasureBSDpayablebybuyersofresidentialpropertiesisnotapplicabletoHongKongpermanentresidentsHoweverotherbuyersincludingbothlocalandnon-localcompaniesarerequiredtopayBSDatarateof15percentontopofexistingstampdutySSDwillalsobechargedonaresalemadewithinthreeyears
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
Finallyon22February2013inresponsetosignsofrenewedexuberanceinthepropertymarketthegovernmentannouncedanotherroundofdemand-sidemanagementmeasuresThisincludedthedoublingoftheadvaloremstampdutyratesacrosstheboardfrom425percentto850percentforallpropertytransactionsSimilartoBSDanexemptionfromthenewstampdutyrateswillbegiventoHongKongpermanentresidentswhoareeitherfirst-timehomebuyersdonotownotherresidentialpropertyorwhoselltheironlyflatandbuyanewonewithinsixmonths
ThesemeasuresalsoneedtobeviewedagainstmeasuresintroducedbytheHongKongMonetaryAuthority(HKMA)whichrequirelocalbankstoimposestricterrequirementsformortgagefinancingforpropertypurchases
Despitelegislationbeingintroducedtoimplementthelasttwomeasureson28December2012and5April2013respectivelytheBillshaveyettobepassedbytheLegislativeCouncilIndeedinanunprecedentedmoveattheBillsCommitteemeetingon31May2013anon-bindingmotionwaspassedaskingthegovernmenttowithdrawthelegislationDespitethewidespreadoppositiontothemeasurestheGovernmenthasindicatedthatitremainscommittedtotakingthemeasuresforward
ThemostreliableguidetotheimpactofthegovernmentrsquosmeasurescanbestbeseenintransactionvolumeTheaveragevolumeofresidentialpropertysaletransactionsfellby38percentduringtheperiodfromNovember2010toOctober2012andbyafurther26percentwithinthethreemonthsfollowingtheannouncementofBSDandtheextensionofSSDinOctober2012
5 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2012rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
6 LegislativeCouncilBriefldquoStampDuty(Amendment)Bill2013rdquoLegislativeCounciloftheHongKongSpecialAdministrativeRegion
AsianRealSnapShotOctober20139
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FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
10AsianRealSnapShotOctober2013
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bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
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rnat
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PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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ork
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affil
iate
d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
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r fir
ms
of t
he K
PM
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are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
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he K
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ork
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affil
iate
d
AsianRealSnapShotOctober201329
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013
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atio
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tern
atio
nal p
rovi
des
no c
lient
ser
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he K
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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G In
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atio
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rovi
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lient
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vice
s an
d is
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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rovi
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lient
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
FurtherstampdutystatisticsfromtheInlandRevenueDepartment(IRD)indicatethatpurchasesofresidentialpropertybynon-localindividualsandcompanies(localandnon-local)felltoamonthlyaverageof249casesor46percentoftotaltransactionsinthefirstfivemonthsof2013wellbelowthemonthlyaverageof1089casesor136percentoftotaltransactionsfromJanuarytoOctober2012(ietheperiodimmediatelybeforetheOctober2012announcement)
Prospective buyers have apparently taken into account the additionalchargesintotheirtotalacquisitioncostsonthebasisthatcapitalappreciationwouldremainintactThisisevidenced by the fact that apart from a mild correction after theannouncementofeachnewmeasurepriceshavestartedtoincreaseagainCurrentthinkingisthatthiswillcontinuetobethecasenotwithstandingthedoublingofstampdutyratesinFebruary2013
HoweverlowmortgageratesandhighliquidityamonglendinginstitutionscombinedwithnosubstantialadditionstoexistingresidentialstockislikelytoseedemandcontinuetooutstripsupplyfortheforeseeablefutureWhenviewedagainstinflationmortgageratesareeffectivelynegativeandthistranslatesintohomeownershiprepresentingarealreturn even in the absence of any rental income or capital gainsThismakestheresidentialmarketinHongKongattractiveforbothinvestorsandendusers
ThatsaidthegovernmentrsquoscoolingmeasureshavehadanimpactparticularlyonsalesvolumesasnotedaboveHoweverpriceshavenotbeenaffectedtothesamedegreewithaveragepricesonlydownslightlyandlikelytoremainflatgoingforwardandwiththerelativelysmallnumberoftransactionsappearingtobelinkedtoself-use
2012Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2013
80
100
120
60
40
20
0
-20
-40
-60
-80
Year-on-Year rate of change in the number of sale and purchase
agreements
SourceTheLandRegistryGovernmentoftheHongKongSpecialAdmistrativeRegion
Hong Kong
10AsianRealSnapShotOctober2013
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bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
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013
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rovi
des
no c
lient
ser
vice
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he K
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India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
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ch t
he in
depe
nden
t m
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ms
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he K
PM
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ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
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rnat
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atio
nal p
rovi
des
no c
lient
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d is
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ch t
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nden
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26AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
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PM
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atio
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PM
G In
tern
atio
nal p
rovi
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no c
lient
ser
vice
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d is
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ch t
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nden
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he K
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iate
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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PM
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PM
G In
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atio
nal p
rovi
des
no c
lient
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vice
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d is
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nden
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he K
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iate
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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Inte
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tive
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PM
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atio
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tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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ch t
he in
depe
nden
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he K
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are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
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no c
lient
ser
vice
s an
d is
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he K
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iate
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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013
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Inte
rnat
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pera
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PM
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atio
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G In
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atio
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rovi
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no c
lient
ser
vice
s an
d is
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ch t
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nden
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he K
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d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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013
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rnat
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l Coo
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(ldquoK
PM
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tern
atio
nalrdquo
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PM
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tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
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whi
ch t
he in
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he K
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
thepresentUSD10millionbull Reducinglandparcelsizeforplotteddevelopmentfrom10
hectaresto2hectaresbull AllowingFDI-fundedfirmstopurchasefarmlandfor
developmentpurposethatisnotallowedincurrentpolicybull Reducingthepresentrequirementoftheminimumbuilt-
upareaof50000m2to20000m2 for construction and developmentprojects
bull Allowingforeigninvestorstoselltheirsharesinarealestatecompanytoothernon-residentinvestors
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
India
New regulatory measures announced
TheIndianrealestatesectoriswitnessingachallengingtimedrivenbylocalandglobaleconomicfactorsRidinghighonthebackofrapidurbanisationpositivedemographicsandrisingincomelevelsithasbecomeanintegralpartofIndianeconomyandplaysasignificantroleinthedevelopmentofthecountryrsquosinfrastructurebaseInanattempttoencourageinvestorrsquosparticipationtheIndianGovernmenthastakencertainpositivestepsinanattempttoencourageinvestorparticipation
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
Thecabinetapprovedthemuch-awaiteddraftRealEstate(RegulationsampDevelopment)Bill2011inJune2013itisexpectedtobepassedintheupcomingmonthsAkeyfeatureofthebillisthatitseekstoestablishaRealEstateRegulatoryAuthority(RERA)alongthelinesoftheTelecomRegulatoryAuthorityofIndia(TRAI)whichregulatesthetelecomsectorTheotherkeyfeaturesofthisbillare
bull DeveloperswillberequiredtoseekregistrationandapprovalofaresidentialprojectfromRERAbeforelaunch
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
bull Acceptanceofadvancepaymentbeforethesigningofanagreementwiththeallotteehasbeenrestricted
bull RERAhasalsoprescribedstringentpenaltiessuchasimprisonmentofdevelopersfornotadheringtotheguidelines
Right to fair compensation and transparency in the Land Acquisition Rehabilitation and Resettlement Act 2013
ThegovernmentrecentlyclearedthenewActwhichreplacesthecenturies-oldActonlandacquisitionThisActhasprovisionstoprovidefaircompensationtothosewhoselandhasbeentakenawayincreasestransparencyintheprocessoflandacquisitiontoestablishfactoriesorbuildingsinfrastructuralprojectsandfacilitatestherehabilitationofthoseadverselyimpactedThekeyfeaturesoftheActare
AsianRealSnapShotOctober201311
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013
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rovi
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no c
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Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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rovi
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percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
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MG
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PM
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nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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ch t
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nden
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iate
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India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
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GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
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rovi
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lient
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Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
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013
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MG
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PM
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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he K
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d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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atio
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rovi
des
no c
lient
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d is
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nden
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26AsianRealSnapShotOctober2013
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rovi
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no c
lient
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d is
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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rnat
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pera
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PM
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PM
G In
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atio
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rovi
des
no c
lient
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vice
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d is
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nden
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he K
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iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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atio
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rovi
des
no c
lient
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vice
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d is
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tity
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ch t
he in
depe
nden
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of t
he K
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ork
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affil
iate
d
AsianRealSnapShotOctober201329
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rnat
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atio
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tern
atio
nal p
rovi
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no c
lient
ser
vice
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d is
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ch t
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nden
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he K
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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PM
G In
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atio
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rovi
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lient
ser
vice
s an
d is
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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rovi
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lient
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
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KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
Promoting affordable housing in the country
AccordingtoestimatesurbanIndiafacesadeficitofabout188millionhousingunits7ThishasledtothemushroomingofslumandsquattersettlementsonexpensivepubliclandCurrentlyaboutaquarterofIndiarsquosurbanpopulationresidesinslumsandsquatters8ConcernedwiththegrowingshortageofurbanhousinginthecountrythegovernmenthasintroducedseveralmeasurestocounterthehousingdeficitSomeofthesereformsare
a) Revision of income criteria for eligibility under various housing schemes for the economically weaker section (EWS) and lower income group (LIG)
ThegovernmenthasrevisedtheincomecriteriaforvarioushousingschemesforEWSandLIGhouseholdsFortheformertheincomeceilinghasbeenincreasedfromUSD923perannumtouptoUSD1540perannumandforthelatterfrombetweenUSD924andUSD1846perannumtobetweenUSD1541andUSD3075perannum9Thiswillincreasetheambitofvariousschemes
b) Extension of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Themissionlaunchedon3December2005facilitatestheprovisionofhousingandbasicservicestourbanpoorslumdwellersin65specifiedcitiesthroughthetwosub-missionsmdashBasicServicestotheUrbanPoor(BSUP)andIntegratedHousingandSlumDevelopmentProgram(IHSDP)Themissionwassupposedtoendby31March2012butithasnowbeenextendedbytwomoreyearstoensurethecompletionofprojectssanctioneduptoMarch2012
c) External commercial borrowings for affordable housing
ThegovernmenthaspermitteddevelopersandhousingfinancecompaniestoraiseuptoUSD1billiondebtinforeigncurrencyforaffordableprojectsThecostofforeigndebtpost-adjustmentsagainstthecurrencyriskisabout10ndash11percentperannumThisisgoodnewsfordevelopersasthelocaldebtcostisabout15ndash24percent10
d) Establishment of the Credit Risk Guarantee Fund Thegovernmenthasestablishedafundforlowerincome
housingwithacorpusworthINR12billionThisfundwouldbeusedtodisburseloanstoEWSandLIGhouseholdstosupporttheminpurchasinghouseswithoutanycollateral
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
RecentmeasurebyIndiarsquoscentralbanktheReserveBankofIndia(RBI)todiscontinuewellknown8020schemeisonesuchinstanceThe8020schemeisaninterestsubventionschemewhereinahomebuyerwouldhavetopayonly20
Project Company PE investorDeal amount (USD million)
Date
VrindavanTechVillage EmbassyGroup BlackstoneHDFCVenture 367 February2013
EonFreeZone PanchshilRealty Blackstone 83 March2013
HinjewadiSEZ ParanjapeSchemesConstruction
IDFCPE 46 March2013
Downtown-TheCityCentre SumaShilp ILampFSMilestoneGroup 164 May2013
HyderabadITPark PhoenixGroup Ascendas 110 June2013
Some prominent fund raising currently underway
SourceVentureIntelligence
7 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia8 TwelfthFiveYearPlanPlanningCommissionGovernmentofIndia9 ldquoIncomeCriteriaforEWSampLIGRevisedUpwardsforDefiningBeneficiariesunderGovernmentSchemesforHousingrdquoPressInformationBureauGovernmentofIndia14November2012
10 KPMGinIndiaanalysis
India
12AsianRealSnapShotOctober2013
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lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
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tern
atio
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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ch t
he in
depe
nden
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ms
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he K
PM
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ork
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affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
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rovi
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no c
lient
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d is
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ch t
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nden
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he K
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26AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
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PM
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tern
atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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ch t
he in
depe
nden
t m
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r fir
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he K
PM
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iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
Inte
rnat
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pera
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PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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ch t
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nden
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he K
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iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
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tive
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PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
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ork
are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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ch t
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ms
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he K
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affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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013
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rnat
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pera
tive
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PM
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tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
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he K
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
percentofthehousingcostandrestisfinancedbythebankTheinterestonthehousingloanispaidbythedeveloperinsteadofthehomebuyerforanagreeduponperiodThisresultsinasignificantreductionoffundingcostfordevelopersmdashfrom18ndash24percentto10ndash12percentLimitedfinancingavenueshaveputinvestorsinanadvantageouspositionpushingthedeveloperstoofferattractivevaluationstoinvestors
TheliquidityconstrainthascreatedopportunitiesforlenderstochooseprojectsthatsuittheirrequirementsIntheresidentialsegmentinvestorsarelookingtoinvestinprojectsthatarestrugglingduetoinsufficientliquidityInvestorsarethusabletosecureassetsatattractivevaluationenablingthemtogeneratereturnsintherangeof18ndash20percentannually
Inthecommercialspacehigh-qualitybuilt-uppropertiesorpropertiesnearingcompletionarethemostsought-afterbyinvestorsProjectsattheconceivingornascentstagearestillnotfavouredbythemajorityofinvestorsespeciallyPEplayersAPEcycleisaboutfourndashfiveyears-longsubsequenttowhichinvestorsdemandtheirfundsbackfromPEHowevercommercialprojectstakeaboutsixndashsevenyearstocomplete
makingitdifficultforPEstoexitduringanongoingprojectThusPEsaremoreinterestedinprojectsthatcandeliverquicklySuchcommercialpropertiesofferasafeexithighersuretyofreturnandfewerdisputesforPEs
DespiteweakfundamentalsPEfundswereabletoraisemorethanUSD2billioninlastyearHoweverunlikeearlierforeigninvestorsareenteringIndiathroughdomesticfundsduetothelatterbetterperformancecomparedtoforeignfundsForinstanceAbuDhabiInvestmentAuthority(ADIA)recentlyinvestedUSD200millioninKotakRealtyFundSovereignFundofOmanandGovernmentofSingaporeinvestedUSD200millioninHDFCRealEstateFundQatarInvestmentAuthority(QIA)isinvestingUSD300millionforjointlypurchasingofficeassetswithRMZCorp11
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
Manager Size (USD million) Date
ElementCapital 1000 Feb-2013
TriVedaCapital 500 Jun-2013
RedFortCapital 500 Aug-2013
JonesLandLasalle 220 Apr-2013
EsselGroup 200 Apr-2013
Some prominent fund raising currently underway
SourceVentureIntelligence
11 ldquoForeigninvestorsbullishonIndianrealtyraisesRs11854croredespitesceptismrdquoTheEconomicTimes30July2013
AsianRealSnapShotOctober201313
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013
KP
MG
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rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
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r fir
ms
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he K
PM
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ork
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affil
iate
d
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
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013
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MG
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rnat
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l Coo
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tive
(ldquoK
PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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he in
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nden
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he K
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iate
d
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
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013
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MG
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rnat
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pera
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PM
G In
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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ch t
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Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
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013
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PM
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
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affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
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013
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MG
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rnat
iona
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tive
(ldquoK
PM
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) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
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ork
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affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
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tive
(ldquoK
PM
G In
tern
atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
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013
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MG
Inte
rnat
iona
l Coo
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tive
(ldquoK
PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
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ch t
he in
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nden
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embe
r fir
ms
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he K
PM
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etw
ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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MG
Inte
rnat
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(ldquoK
PM
G In
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atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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ch t
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nden
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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atio
nal p
rovi
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no c
lient
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
India
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
TheluxuryhousingmarkethasgrownataCAGRofabout25percentoverthelastfewyears15Luxuryhousingconstitutesabout5percentofthetotalreal-estatemarket16ItisexpectedthatluxuryhousingmarketmaygrowataCAGRofapproximately35percentinnextcoupleofyears17
Demandforbrandedresidencesismainlyprevalentacrosssub-urbancentresinsteadofmajormetrocitiessuchasDelhiandMumbaiInthesecitiesHNIsresidinginposhlocalitiesarelookingforbetterhousingfacilitiesatacheaperpriceBrandedresidentialprojectsinGurgaonaredrawingsignificantinterestofHNIsresidinginposhlocalitiesofDelhiGurgaonalsooffersbetterinfrastructureandluxuryatahighdiscountMumbaihasasimilarstorywhereHNIsarelookingforbetteroptionsinsuburbssuchasPowaiorThane
LeadingdevelopersinIndiaarecollaboratingwithrenownedgloballuxurybrandsandhotelchainstodevelopbranded-luxuryvillasflatsandserviceapartmentsThedevelopersarescoutingfornewideastoattracttheHNIsrsquoattentionandre-defineluxuryliving
12 ldquoDemandforluxuryhomesstillintactdespiteplungingsalesrdquoFirstpost19November201213 ldquoIndiarsquosrichandtheirwealthgrewlastyearreportrdquolivemint25September201314 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201315 ldquoLuxuryhomescatchrealestatemarketrsquosfancyrdquoTheEconomicTimes3June201316 ldquoLuxuryhousingmarketpickingpacerdquoMoneyTodayJuly201217 ldquoHousingMarketinIndiaWitnessingHugeMomentumrdquoSBWire23September2013
14AsianRealSnapShotOctober2013
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GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
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013
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PM
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G In
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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rovi
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d is
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26AsianRealSnapShotOctober2013
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lient
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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lient
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d is
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nden
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he K
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affil
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d
AsianRealSnapShotOctober201329
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lient
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d is
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
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KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
GloballyIndonesiahasbecomeaprimeresidentialmarketduetoastrongeconomicbaselineoutlook(above6percentGDPgrowthforthepastfiveyears)andtherapidexpansionofthemiddle-class18HowevertheriseintheIndonesianpropertymarkethasnotbeenwithoutchallengesandrestrictionsBelowdetailssomeofthechallengesandrestrictionsfacedbytheIndonesianrealestateindustry
Legal ownership challengeLegalissuesremainthemajorchallengeintheIndonesianrealestateindustryTherearemanylandownershipdisputesthatareduetolandcertificateconflictApartywithanoldcustomarylandownershipcertificatemaychallengealandownerwithalandcertificateissuedbytheNationalLandOffice(BadanPertanahanNasional-BPN)ThisconditionislegallypossibleaccordingtoAgrarianActNo5Year1960whichstatesthatIndonesiarecognisedcustomarylawforlandownershipAlsoaccordingtoGovernmentRegulationNo24Year1997article32otherrightfulpartieswithappropriatesupportingdocumentationmayclaimlandownershipwithinfiveyearsofthedatethelandcertificateshasbeenissuedbytheNationalLandOffice(BadanPertanahanNasional-BPM)
ForaddressinglanddisputeissuesthegovernmentisplanningtodoalandregulationreformCurrentlythedraftofthenewlandactisbeingdiscussedontheparliamentarylevelThedraftmentionsthatthegovernmentwillcollectdataonlandownershipintheentireterritoryoftheRepublicofIndonesiawithinaperiodoffiveyearstoprovidelegalcertaintyregardinglandownershipandestablishaspecialcourtforlanddisputes
Indonesia
Land regulation reform and loan restriction
Foreign ownership restrictionsLandownershipinIndonesiaisregulatedbyAgrarianActNo5Year1960Belowisthemostcommonlegallandtitletypeavailableundertheact
1 Right of OwnershipFreehold (Hak Milik or HM) Absolutelandownershipright-thisrightishereditaryand
withouttimelimits
2 Right to Build (Hak Guna Bangunan or HGB) Therighttoconstructandpossessbuildingsonlandfora
limitedperiodandcanbeextendedforacertainperiod
3 Right to Use (Hak Pakai or HP) Therighttouseorobtainresourcesfromthelandfora
limitedperiodasdefinedbythelandownerorgovernmentofficial
4 Right of Exploitation (Hak Guna Usaha or HGU) Therighttocultivateorexploitstate-ownedlandfor
agriculturalfisheryorhusbandrypurposesthisrightisonlyforalimitedperiod
5 Right to Lease (Hak Sewa or HS) Therighttoleaseortousepropertyofothersforalimited
period
ExceptforRightofOwnershipFreeholdallotherlandtitletypearesomekindleaseholdownershipAccordingtothecurrentregulationforeignersarenotallowedtoownfreeholdland(HakMilikorHM)NeverthelessforeignersmaysetupanIndonesianlegalentityasForeignInvestmentCompany(PenanamanModalAsingorPMA)toownthelandundercertaincertifiedlandtitles
Criteria Right of Owner-ship (Hak Milik)
Right to Build (HGB)
Right of Use (Hak Pakai)
Right of Exploitation
Right of Lease (Hak Sewa)
Owners
Indonesianindividual
Foreignindividual
Indonesiacompany
Foreigncompany
Period
InitialPeriod(Mazimum)
ExtendablePeriod
bull
NoLimit
NoLimit
bull
bull
30years
20years
bull
bull
bull
bull
25years
20years
bull
bull
35years
25years
bull
bull
bull
bull
30years
20years
Notes includingPMA musthavearepresentativeofficeinIndonesia applicableonlyforstate-ownedland
Legal structure of land titles19
18 2013GlobalWealthReportKnightFrank19 LawNo5of1960ldquoPrinciplesProvisionsofAgrarianrdquoGovernmentoftheRepublicofIndonesia
AsianRealSnapShotOctober201315
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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atio
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rovi
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no c
lient
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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atio
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rovi
des
no c
lient
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vice
s an
d is
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ch t
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nden
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26AsianRealSnapShotOctober2013
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013
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MG
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atio
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rovi
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no c
lient
ser
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d is
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ch t
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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pera
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PM
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PM
G In
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atio
nal p
rovi
des
no c
lient
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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atio
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rovi
des
no c
lient
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vice
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d is
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nden
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of t
he K
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affil
iate
d
AsianRealSnapShotOctober201329
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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no c
lient
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he K
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
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Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Residential property developer financing composition
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
Banking Loan3371
Customers Advance Payment
885
Others133
Non Banking Institution Loans
251
Joint VentureConsortium
874
Others539
Internal Fund 5361
Paid in Capital2010
Retained Earning1938
SourceBankIndonesia
20CirculationLetterNo1410DPNPBankIndonesia15March2012
16AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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atio
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rovi
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no c
lient
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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atio
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rovi
des
no c
lient
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vice
s an
d is
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ch t
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nden
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26AsianRealSnapShotOctober2013
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013
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MG
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atio
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rovi
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no c
lient
ser
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d is
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ch t
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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pera
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PM
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PM
G In
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atio
nal p
rovi
des
no c
lient
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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atio
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rovi
des
no c
lient
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vice
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d is
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nden
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of t
he K
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affil
iate
d
AsianRealSnapShotOctober201329
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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no c
lient
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he K
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
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typesinsecondquarterof201321Themostsignificantgrowthfoundinthepriceofmediumsizedhouse(256percentquartertoquarter)22Thisconditionisfollowedbyagrowthinmortgagewhicharestillthelargestshareofpropertyloanscountedas5997percentofthetotaloutstandingpropertyloansthisyear23Housingand
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
SourceBankIndonesia
Financialauthoritieshavebecomecautiousofperkylendingactivitiesduetofearsthatitwillleadtoanincreasednumberofnon-performingloansatbankswhichmaycauseadomesticbankingcrisisAsaresultBankIndonesiarecentlyamendeditsregulationtotightentheLoan-to-Assetratio(LTV)forpropertycreditsandproperty-backedconsumerloansTheregulatoryamendmentisconstrainedwithinBankIndonesiaCirculationLetterNo1540DKMPdated24thSeptember2013Basedontheamendmentreasonsto
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
7545
Primary Market Secondary Market
5862
2586
15521032
1423
Mortgage Cash Installment Cash
Type of FinancingLTV Growth
2011 (Q1) 2012 (Q1) 2013 (Q1)
KPRType22m2-70m2
KPRTypegt70m2
KPRSTypelt21m2
KPRSType22m2-70m2
KPRSTypegt70m2
KPHOKPHS
246
350
71
3173
1612
1252
186
472
2953
804
681
314
130
398
1289
796
704
346
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
Growth for period 2011-2013
SourceBankIndonesia
21ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201322ResidentialPropertyPriceSurveyQuarterII-2013BankIndonesia28August201323CommercialPropertySurveyQuarterII-2013BankIndonesia27August201324CommercialPropertySurveyQuarterII-2013BankIndonesia27August2013
AsianRealSnapShotOctober201317
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
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he K
PM
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ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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atio
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rovi
des
no c
lient
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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ch t
he in
depe
nden
t m
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ms
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he K
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affil
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d
26AsianRealSnapShotOctober2013
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013
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MG
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PM
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atio
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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ch t
he in
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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rnat
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pera
tive
(ldquoK
PM
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tern
atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
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vice
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d is
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nden
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he K
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iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
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tive
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atio
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atio
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rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
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ork
are
affil
iate
d
AsianRealSnapShotOctober201329
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013
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atio
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tern
atio
nal p
rovi
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no c
lient
ser
vice
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d is
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he K
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affil
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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rovi
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lient
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d is
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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no c
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he K
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
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KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
ThenewLTVregulationcontrols251 ThemaximumLTVformortgagefinancingasillustrated
below
Type of FinancingMaximum LTV
First Property Second Property Third Property
KPRTypegt70m2
KPRSTypegt70m2
KPRType22m2-70m2
KPRSType22m2-70m2
KPRSTypegt21m2
KPHOKPHS
70
70
-
80
-
-
60
60
70
70
70
70
50
50
60
60
60
60
KPR=MortgageforlandedhouseKPRS=MortgageforcondominiumapartmentKPHOKPHS=MortgageforHomeOfficeampHomeStore
LTV mortgage regulation -2013
SourceBankIndonesia
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
thepropertydevelopmentasagreedwiththecustomer
25CirculationLetterNo1540DKMPBankIndonesia24September201326CirculationLetterNo1540DKMPBankIndonesia24September2013
bull Corporateguaranteefromthepropertydeveloperfortosettlethecustomerrsquosmortgageobligationsincaseofthepropertyisnotcompletedasagreed
bull Loandisbursementistobeconductedinseveralphasesaccordingtothedevelopmentprogressoftheproperty
Indonesia
18AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
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PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
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ork
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affil
iate
d
26AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
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(ldquoK
PM
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tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
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r fir
ms
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he K
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ork
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affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
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tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
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013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
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ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
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ch t
he in
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nden
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he K
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ork
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d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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MG
Inte
rnat
iona
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(ldquoK
PM
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tern
atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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wis
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depe
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he K
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iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
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KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
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TheldquoAbenomicsrdquointroducedbytheJapaneseGovernmentafterPrimeMinisterAbetookofficeisaneweconomicpolicyconsistingofthreestrategiestopromoteprivateinvestmentsrelaxationofmonetarypolicyflexiblefiscalpolicyandgrowthstrategyItisexpectedthattheeconomywillgrowifthepolicycanbesuccessfullyimplementedThegraphbelowshowstheindexesoftheJ-REITandrealestatestockontheTokyoStockExchange(TSE)Althoughbothindexeshavenotyetrecoveredtopre-LehmanShocklevelsbothhaveincreasedbyapproximately25percentand60percent respectively27afterMrAbebecamePrimeMinister
OfAbenomicsrsquothreecornerstonepoliciesrelaxingmonetarypolicyhashadthemostimmediateimpactontheJapanrsquosrealestatemarketUnderthismonetarypolicytheBankofJapanwilldoublethemoneysupplyintwoyearsthroughquantitativeeasing28HoweverasJapanrsquoseconomyremainssluggishJapanesecompaniesaregenerallyreluctanttoincreasetheircapitalexpenditurethroughborrowingmoneyandthecurrentequityratioremainshistoricallyhighatapproximately42percent29ThereforeJapanesebanksarenotexpectedtoincreaselendingtoJapanesecompaniesintheshorttermregardlessofthequantitativeeasingmeasuresInsteadtheyhaveturnedtoincreaserealestatefinancingandfinancinginoverseas
Japan
New economic policies introduced
Abenomics Policy Outline Impact on Real Estate Market
1 Laxmonetarypolicy
DoublingmoneysupplyintwoyearsthroughtheBankofJapanspurchaseofJapanesegovernmentbondJ-REITstockandotherriskassets from private sectors
Short-Term Decreaselong-terminterestrate
Mid-Term Increaselong-terminterestrate
2 Flexiblefiscalpolicy Increasepublicspendingforthemaintenanceofinfrastructureetc
Short-to Mid-Term
Rentincreaseduetothegrowthofeconomy and increased demand in the private sector
Mid-to Long-Term
Lowerriskpremiumoninvestmentduetothe improved safety of infrastructure
3 Growthstrategytopromote private
DeregulationparticipationintheTrans-PacificPartnershiptaxincentivesforcapitalexpenditureetc
Mid-Term Growthofrealestateincomeduetomorerobust economic outlook
SourceSumitomoMitsuiTrustResearchInstituteCoLtd
Summary Chart of Abenomics
TSE Indexes of J-REIT and Real Estate Stock
0
100
200
300
400
500
600
200303
200309
200403
200409
200503
200509
200603
200703
200803
200903
201003
201103
201203
201303
200609
200709
200809
200909
201009
201109
201209
201309
J-REIT Index Real Estate Stock Index
Exposure of Subprime Mortgage Crisis
Bankruptcy of Lehman brothers
The Bank of Japan purchased J-REIT
Exposure of European financial crisis
Heightened expectation for ldquoAbenomicsrdquo
Announcement of 2020 Olympic Games in Tokyo
SourceBloomberg
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
45
40
35
30
Historical Equity Ratio of Japanese Company
SourceJapanMinistryofFinance
27Bloomberg28 IntroductionoftheldquoQuantitativeandQualitativeMonetaryEasingrdquoBankofJapan4April2013
29法人企業統計PolicyResearchInstituteMinistryofFinanceJapan
AsianRealSnapShotOctober201319
copy 2
013
KP
MG
Inte
rnat
iona
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pera
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(ldquoK
PM
G In
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
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tity
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ch t
he in
depe
nden
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r fir
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he K
PM
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ork
are
affil
iate
d
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
copy 2
013
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MG
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rnat
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PM
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atio
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PM
G In
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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with
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ch t
he in
depe
nden
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r fir
ms
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he K
PM
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affil
iate
d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
copy 2
013
KP
MG
Inte
rnat
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pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
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ms
of t
he K
PM
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are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
AsclearersignsofrealestatemarketbottomingoutemergebothdomesticandinternationalinvestorsareeagertoresumerealestateinvestmentinJapanThisappetiteforinvestmentcoincideswiththeincreaseinrealestatefinancingresultingfromthequantitativeeasingmeasuresJapanesebanksareespeciallyinterestedinfinancingofficebuildingsandresidentialpropertiesinTokyobecausetheyaregenerallycompetitiveandgeneratestablecashflowsHoweverJapanesebanksarestillcautiousaboutofficebuildingsinbelowBlocationsandresidentialpropertiesofmorethantenyearsolddespitetheirTokyolocation
Thecurrentspreadonnon-recourseloansforclassAofficebuildingsinprimelocationsisbetween20bpsand60bpswhileloantovalueisaround70percentJapanesebanksarealsosponsor-sensitiveandarewillingtoofferbetterfinancingalbeitnon-recourseatbelow20bpsspreadforclassAofficebuildingsiftheirsponsorcompanyhasagoodinvestmenttrackrecordhighfinancialstrengthandassetmanagementcapabilities
Japanesebanksarealsocautiousandpreferrecourseloansovernon-recourseloanswhenitcomestofinancingconstructionanddevelopmentprojectsYettheyarerelativelydisposedtobackinglogisticspropertyconstructionsasthesepropertiesaredeemedtohaverelativelylowerriskduetotheshortageofhigh-speclogisticspropertiestoaccommodatethegrowthofe-commerceandtheirshorterconstructionperiodofapproximatelyoneyear
Althoughthecurrentyearhasseenmorerealestatetransactions than the previous year transactions are still not infullswingevenwhenthemarkethasbottomedoutwiththerelaxationoftherealestatefinancingenvironmentThisispartlyduetothefactthatJapanesebanksareinclinedtorefinanceexistingrealestateloansatmaturityoralternativelytoreplacefinancingofferedbyotherbanksatmaturityGiventheabovementioneddifficultyinexpandinglendingtoJapanesecompaniesthispracticeisreasonableasthebanksneedtomaintainorincreasetheiroutstandingrealestateloanbalanceinthischangingenvironment
Japan
10
8
6
4
2
0
-2
-4
-6
65
63
61
59
57
55
53
51
49
47
45
Loan
amou
nt(J
PYtrillion)
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
7
Dec
200
4
Jun
2008
Jun
2005
Dec
200
8
Dec
200
5
Jun
2009
Jun
2006
Dec
200
9
Dec
200
6
Jun
2010
Jun
2011
Jun
2007
Dec
201
0
Dec
201
1
Jun
2012
Dec
201
2
Jun
2013
Outstanding Loans Rate of Increase from Preceding Quarter
Outstanding Loan Balance of Real Estate Industry
Note1)Realestateindustryincludesrealestatecompaniesrealestateinvestmentvehiclesandindividualinvestors
SourceTheBankofJapan
20AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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are
affil
iate
d
competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
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lient
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vice
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tity
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he K
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iate
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Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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d is
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26AsianRealSnapShotOctober2013
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
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013
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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AsianRealSnapShotOctober201329
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
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competitivehigh-endretailbuildingslocatedinGinzaorOmotesandoissomewherebetween35percentand45percent30
ThemostcompetitiveinvestorsinthemarketareJ-REITsandmajorrealestatecompaniessuchasMitsuiMitsubishiSumitomoNomuraandTokyu
J-REITsareeagertoinvestthroughpublicofferingsandtakeadvantageoftherecoveryintheirsharepricesAtthesametimeJapanesebanksareincreasingtheirlendingtoJ-REITsbecausetheloan-to-valueratioofJ-REITinvestmentsistypicallybetween40percentand50percent31andlendingtoJ-REITsisconsideredtobearelativelysafeinvestment
MajorJapaneserealestatecompaniesalsowanttoexpandtheirbusinessandarelookingfordevelopmentopportunitiesInturnhowevertheyareJapanesebanksrsquotargetsoflendingbecausetheytendtohavehealthybalancesheetsUndertheir business model a property is developed then sold to a privaterealestatefundthattheymanageuntilthepropertyisfullydevelopedanditsoccupancyreachesasufficientlyhighlevelAfterthatthepropertyissoldtoaJ-REITalsomanagedbythesamecompanywhencashflowstabilizestypicallyin3to5yearsThisbusinessmodelensuresthattheserealestate companies are able to secure a pipeline of properties fortheirprivaterealestatefundsandJ-REITsRealestatecompaniesinJapanalsooperateprivateREITswhichareattractivetoJapaneseinstitutionalinvestorsandpensionfundsandareactivelyinvestinginlogisticspropertyusingtheirbalancesheetsItisexpectedthattherewillbemorelogisticspropertyREITscomingonlineinafewyears
Oneofthenotableregulatoryissuesfacingtherealestatebusinessistobringoldbuildingsuptodatetotheearthquake-resistantbuildingstandardsintroducedin1981AccordingtotheMinistryofLandInfrastructureTransportandTourism(MLIT)approximatelyUSD12trillionworthofpropertiesconstructedbefore1981andownedbytheprivatesectormaynotsatisfythelatestregulatoryrequirementsInordertoacceleratethelargescalerenovationandreconstructionoftheseoldbuildingsbeginningfrom25November2013buildingsalongdesignatedmajorstreetswillberequiredtoundergoastructuralstudytoassesstheirneedforupgradingIftheyfailtoundergothismandatoryprocedurethemunicipalgovernmentcanpubliclyannouncethenamesofthenon-compliantownersandorderrenovationworktobedoneonthebuildingsFurthermorethosebuildingsofmorethan5000squaremetresoffloorareaandarepotentiallyused by an unlimited number of people for purposes such as retailhospitalandhotelarealsorequiredtoundergostructuralexamination
Transaction volume
NoteDatacoverstransactionsmadebythelistedcompaniesofallindustriesincludingJ-REITs
SourceUrbanResearchInstituteCorp
Transactionvalue(1sthalfApril-Sep) Transactionvalue(2ndhalfOct-Mar) Numberoftransaction(Yeartotal)
FYE3rsquo00
FYE3rsquo01
FYE3rsquo02
FYE3rsquo03
FYE3rsquo04
FYE3rsquo05
FYE3rsquo06
FYE3rsquo07
FYE3rsquo08
FYE3rsquo09
FYE3rsquo10
FYE3rsquo11
FYE3rsquo12
FYE3rsquo13
Num
beroftransactions
Tran
sactionvalue(JPYtirllion)
00
10
20
30
40
50
60 1600
1400
1200
1000
800
600
400
200
006
14
583594
542
648 846859
1155
1340
1196
502523
676 673
823
1611 12 17 18
2224
32
0811
12 1018
09 09 10 07 08
19 2022
1106 09 07 08
Office Retail Residential Logistics Business Hotel
30
40
50
60
70
80
2003
1020
044
2004
1020
054
2005
1020
064
2006
1020
074
2007
1020
084
2008
1020
094
2009
1020
104
2010
1020
114
2011
1020
124
2012
1020
134
CAP Rates by Property Types in Tokyo
SourceJapanRealEstateInstitute
Definitionsbull OfficeA-classbuildingslocatedinMarunouchiandOtemachibull ResidentialMultifamilyapartments(50ndash80m2)locatedinthesouthernpartofTokyo(Setagaya
andMeguro)thatarewithin10-minutewalkingdistancefromstationsandlessthan5yearsold
bull RetaillocatedinGinza(alongGinzaChuoAvenue)andbrandneworbuildingsrenovatedextensivelyinthepast5years
bull Logisticsbuildingsof2to3storieswithtotalfloorareaofapproximately10000m2 and locatedinTokyoBayarea
bull BusinessHotelwithin5-minutewalkingdistancefromstationsbuildinglessthan5yearsoldADR6000ndash8000yenroomandapproximately100rooms
RealestateacquisitioninTokyoisverycompetitivebecauseoftherelativelylowsupplyofprimepropertiesAndasJapanesebanksdonotforceborrowerstosellpropertiestorepaydebtatloanmaturitythecapitalisationrate(CAPrate)hascompressedcomparedtothepreviousyearTheCAPrateofthemostcompetitiveofficebuildingslocatedintheMarunouchiareaaroundTokyoStationissomewherebetween33percentand43percentwhilethatofthemost
30 TheJapaneseRealEstateInvestorSurveyJapanRealEstateInstituteApril201331 ldquo財務ハイライト第19期~第24期rdquoNipponBuildingFundJune2013ldquo第23期末のLTV(総資産有利子負債比率)情報rdquoJapanRealEstateInvesmentCorporationMarch2013rdquo負債の概要rdquoFrontierRealEstateInvestmentCorporation30June2013
AsianRealSnapShotOctober201321
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201323
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
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MG
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rnat
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pera
tive
(ldquoK
PM
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atio
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PM
G In
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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ch t
he in
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nden
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he K
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iate
d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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013
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MG
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PM
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tern
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nal p
rovi
des
no c
lient
ser
vice
s an
d is
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with
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ch t
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nden
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ms
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he K
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ork
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affil
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d
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
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l Coo
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tive
(ldquoK
PM
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tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
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with
whi
ch t
he in
depe
nden
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he K
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are
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iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
copy 2
013
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MG
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rnat
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pera
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PM
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
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ch t
he in
depe
nden
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of t
he K
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are
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d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
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rnat
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tive
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PM
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tern
atio
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atio
nal p
rovi
des
no c
lient
ser
vice
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d is
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tity
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ch t
he in
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nden
t m
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he K
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ork
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affil
iate
d
AsianRealSnapShotOctober201329
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013
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MG
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rnat
iona
l Coo
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tive
(ldquoK
PM
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tern
atio
nalrdquo
) K
PM
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tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
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ch t
he in
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nden
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ms
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he K
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iate
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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013
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MG
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rnat
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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ch t
he in
depe
nden
t m
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r fir
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he K
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ork
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iate
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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PM
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atio
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rovi
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lient
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
Japanwillalsoamenditsvotingrequirementforlarge-scalerenovationofcondominiumbuildingstomakecompliancewithearthquake-resistantbuildingstandardseasier32
AccordingtoMLITofthe59millioncondominiumbuildingscurrentlyexistinginJapanapproximately1million(equalto17percentofthetotal)arenotearthquake-resistantUndercurrentregulationstheownersrsquoassociationofacondominiumneedstosecurea34majorityvotetoundertakealargescalerenovationunderthenewrulesalsoeffectivefrom25November2013itwillonlyrequiremorethan12ofthevotesforago-ahead
FurthermoretheJapanesegovernmentisconsideringamendmenttovotingrequirementforreconstructionofnoncompliantcondominiumbuildingsfroma45majorityvotetoa34majorityvote33
Tofacilitatelarge-scalerenovationworkandreconstructiontheJapanesegovernmentsubsidisesrenovationorreconstructioncostsItalsograntsadditionalbuilding-to-landratioandfloorarearatiotomakereconstructionprojectseconomically feasible34OntopoftheseincentivesitisexpectedthattheJapanesegovernmentwillintroducetaxbreaksforlarge-scalerenovationworkaimedatbuildingenhancementThesetaxbreaksmayincludehalvingpropertytaxforcertainyearsandgrantingaccelerateddepreciation
InordertocaptureopportunisticinvestmentinTokyointernationalinvestorsmayconsiderbuildingrehabilitationorreconstructionprojectsinthecentralTokyoareaEvicting
Japan
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
TypicallyforinternationalinvestorstobeabletoinvestinrehabilitationorreconstructionprojectsinJapanonewillneedtoworkwithaJapanesedeveloperorassetmanagementcompanythathasagoodtrackrecordinthisareaButmajorJapanesedevelopersareunlikelytobeoptimaltargetsforinternationalinvestorsassuchcompaniesnormallydonotrequirethird-partycapitalstoundertakeprojects
ItshouldbenotedthatconstructioncostsareexpectedtorisealongwithincreaseddevelopmentprojectsinTokyoFollowingthe2011earthquakeinnorthernJapanthereisapersistentshortageofskilledconstructionworkersresultinginrisinglabourcostsFurthermoretheweakyenthankstoAbenomicshasmountedupthecosttoimportrawmaterialsforconstructionprojects
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Condominium Office
95
97
99
101
103
105
2011
1
2011
2
2011
3
2011
4
2011
5
2011
6
2011
7
2011
8
2011
9
2011
10
2011
11
2011
12
2012
1
2012
3
2012
3
2012
4
2012
5
2012
6
2012
7
2012
8
2012
9
2012
10
2012
11
2012
12
2013
1
2013
2
2013
3
2013
4
2013
5
2013
6
2013
7
2013
8
Historical Construction Costs
NoteBaseperiod=2005
SourceConstructionResearchInstitute
32 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
33 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
34 ldquo建築物の耐震改修の促進に関する法律の一部を改正する法律案rdquoMinistryofLandInfrastructureTransportandTourism8March2013
22AsianRealSnapShotOctober2013
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d
AsianRealSnapShotOctober201323
copy 2
013
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MG
Inte
rnat
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(ldquoK
PM
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nalrdquo
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atio
nal p
rovi
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no c
lient
ser
vice
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d is
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Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
copy 2
013
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atio
nal p
rovi
des
no c
lient
ser
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s an
d is
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he K
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are
affil
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d
Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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atio
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rovi
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no c
lient
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d is
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nden
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26AsianRealSnapShotOctober2013
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MG
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atio
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rovi
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no c
lient
ser
vice
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d is
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ch t
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nden
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
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013
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MG
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pera
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PM
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atio
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PM
G In
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atio
nal p
rovi
des
no c
lient
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vice
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d is
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ch t
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nden
t m
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he K
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iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
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atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
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tity
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ch t
he in
depe
nden
t m
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r fir
ms
of t
he K
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ork
are
affil
iate
d
AsianRealSnapShotOctober201329
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013
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MG
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rnat
iona
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tive
(ldquoK
PM
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atio
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PM
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tern
atio
nal p
rovi
des
no c
lient
ser
vice
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d is
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ch t
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nden
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he K
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iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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atio
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rovi
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lient
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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rovi
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
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KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
AsianRealSnapShotOctober201323
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rnat
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PM
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tern
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nal p
rovi
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no c
lient
ser
vice
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d is
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Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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rovi
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lient
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d is
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nden
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he K
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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d is
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26AsianRealSnapShotOctober2013
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lient
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d is
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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PM
G In
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rovi
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no c
lient
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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rovi
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no c
lient
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vice
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d is
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nden
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he K
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affil
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d
AsianRealSnapShotOctober201329
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rovi
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lient
ser
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d is
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
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Singapore
Introduction of the Total Debt Servicing Ratio framework
Contributed by Lee Lay Keng Head of Singapore Research and Hanna Safdar Husain Research Analyst DTZ
Bytheendof2009astheSingaporeeconomyrecoveredaftertheGlobalFinancialCrisis(GFC)thepropertymarketbeganitsupswingTheresidentialsectorwasthefirsttoregisterpositivegrowthinQ32009withtheothersectorsfollowingsoonastheeconomystrengthened
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
percent35InadditiontheMonetaryAuthorityofSingapore(MAS)refinedtherulesrelatedtotheapplicationoftheexistingLTVlimitsonhousingloanstherebyreducingtheprobabilityofhomebuyerspurchasingprivatepropertiesinthenameofproxiestocircumventtheheavierAdditionalBuyerrsquosStampDuty(ABSD)payablewitheffectfromtheJanuary2013measures
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
ThemostrecentpolicychangeaffectingthepropertymarketwastheimplementationoftheTotalDebtServicingRatio(TDSR)frameworkforallpropertyloanswitheffectfrom29June2013Toensurethatborrowersarenotover-leveragedandpotentiallyimpactedbyrisinginterestratesthenewframeworkensuresthatanypropertyloanextendedbyafinancialinstitutionshouldnotexceedaTDSRthresholdof60
35Calculatedusinganinterestrateof35percentforhousingloansand45percentfornon-residentialloansortheprevailingmarketinterestratewhicheverishigher
36DTZInsightreportLimitedimpactonfirstandsecondpropertydemand10July2013
Take-up and launches of private home by month
SourceURAREALIS15AugustDTZResearch
0
1000
2000
3000
4000
5000
Post Sep 09
measures
Post Feb 10
measures
Post Aug 10
measures
Post Jan 11
measures
Post Dec 11
measures
Post Jan 13
measures
Jun 13 measures
Post Oct 12
measures6000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Oct-10
Dec-10
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Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Primary sales Secondary sales Units launched
Noofun
its
SourceURAREALIS15AugustDTZResearch
Strata-titled transactions in the industrial and commercial sectors
2000
1500
1000
500
0
Post Jan 13 measures
Post Dec 13 measures
Post Jan 13 measures
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q2
08
Q2
09
Q2
10
Q2
11
Q2
12
Q2
13
Q3
08
Q3
09
Q3
10
Q3
11
Q3
12
Q4
08
Q4
09
Q4
10
Q4
11
Q4
12
Industrial Office Retail
Nooftran
sactions
24AsianRealSnapShotOctober2013
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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MG
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rovi
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no c
lient
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d is
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26AsianRealSnapShotOctober2013
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lient
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In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
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MG
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PM
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TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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no c
lient
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d is
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nden
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he K
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affil
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AsianRealSnapShotOctober201329
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no c
lient
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Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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no c
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
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Mindfulthatshort-termspeculativeactivitycoulddistorttheunderlyingpricesofindustrialpropertiesandraisethebusinesscostsfortrueindustrialiststhegovernmentimposedaSellerrsquosStampDuty(SSD)of5-15percentonthesaleofindustrialpropertiesandlandboughtandsoldwithinthreeyearswitheffectfrom12January2013Thismarkedthefirstpropertycoolingmeasurespecifictotheindustrialsector
Consequently718stratafactoryunitsweretransactedinH12013down15percentfrom846unitstransactedinH22012Meanwhilethepricegrowthacrossindustrialpropertiesslowedpost-SSDincreasingbyonly4percentinH12013comparedtoafull-yeargrowthofapproximately24percentin2012PricegrowthintheindustrialsectorisexpectedtoslowfurtherinH22013beforepickingupin2014onthebackofanimprovingeconomy
Inthecommercialsector(comprisingtheofficeandretailsectors)althoughspeculativeactivityexistsithasbeenlessprominent because the number of transactions is substantiallylowercomparedtotheindustrialsectorStrata-titled commercial units are limited in supply and moreover mostcommercialdevelopmentsareusuallyeitherownedbydevelopersorRealEstateInvestmentTrusts(REITs)Howeversimilartotheindustrialsectortherewasanincrease in transactions in the commercial sector as investor interestwasdivertedawayfromtheresidentialsectoraftertheABSDwasintroduced
Priceincreaseswereseenacrossbothretailandofficesectorsin2012andH12013withstrongerpricegrowthintheretailsegmentAccordingtotheUrbanRedevelopmentAuthority(URA)averagepricesforretailpropertiesgrewbyonly2percentin2012butsurgedby4percentinH12013
Outlook ItistooearlytoassessthefullimpactoftheTDSRframeworkontheresidentialsectorbutweexpectthatthedampeningeffectofthenewTDSRframeworkisgreaterwhenthecumulativeeffectsoftheearlierroundsofcoolingmeasuressuchasthehigherABSDandstricterLTVrulesarealsotakenintoaccountThecombinationoftheJanuary2013measuresandtheTDSRframeworkwillleadtoafallintransactionvolumeforprivatehomesthisyearwhilepricesareexpectedtoholdbarringanymajorexternalshocks
ThenewTDSRframeworkalsoappliestonon-residentialpropertyloanshencereducingthediversionofinvestorinterest to the industrial and commercial sectors as a result ofthecoolingmeasuresintheresidentialsectorInvestorsshouldalsonotethatpurchasesofnon-residentialproperties
aresubjecttotheGoodsandServicesTax(GST)andLTVlimitsareusuallylowerInadditionthepropertytaxconcessiononvacantpropertieswillberemovedwitheffectfrom1JanuarynextyearThiswillapplyacrossallpropertiesand could impact on property rentals as investors may be morenegotiableonrentssoastoavoidkeepingtheirpropertiesvacantandpayingthepropertytaxes
Notwithstandingtheoverhangofpolicymeasuresinthepropertysectorcapitalandrentalvaluesforpropertieswithgoodconnectivityandaccessibilityanduniqueattributes(suchasresidentialdevelopmentsintegratedwithcommercialcomponents)areexpectedtoholdupInthelongertermnewgrowthareasthatthegovernmentisdevelopingaspartoftheirdecentralisationplanstobringjobsclosertohomesandtoreducecongestioninthecityduringpeakhourscouldalsoseeanuplifttothecapitalandrentalvaluesintheseareas
Thisconceptofdecentralisationwasfirstintroducedinthegovernmentrsquos1991ConceptPlanandsincethentheTampinesRegionalCentrehasbeensuccessfullydevelopedNewregionalcentresintheworksnowincludetheJurongLakeDistrictarea(whichwillbethelargestcommercialcentreoutsidetheCentralBusinessDistrict)aswellastheWoodlandsRegionalCentrewhichwillanchorthedevelopmentoftheNorthCoastInnovationCorridorthataimstobringmorejobstopeoplelivinginthenorthofSingaporeThedevelopmentofWoodlandsRegionalCentrehasbeenkick-startedwiththereleaseofacommercialsiteontheH22013GovernmentLandSalesprogrammewhichwillprovideanestimated66000 (grossfloorarea)ofofficespaceand3500m2(grossfloorarea)ofancillaryretailspace
MrHoTianLamDTZSEArsquosChiefExecutiveOfficercommentedldquoWiththegovernmentplansforthetownandimprovedaccessibilityassupportinginfrastructuresuchasthenewThomsonLineandNorth-SouthExpresswayaredevelopedtheWoodlandsRegionalCentrecouldpotentiallygrowtoservetheneedsofbusinessuserswithlinksandtie-upsacrosstheCausewayrdquo
ThedevelopmentoftheJurongLakeDistrictareaandtheWoodlandsRegionalCentrearepartoftheplansoutlinedintheLandUsePlan2030Amongsttheplansistheaimtobuild700000homesby2030tosupportapopulationthatcouldgrowfrom53million(asatJune2012)to65-69millionin203037Inthelonger-termtheprojectedincreaseinpopulationwillsupportpropertypricesinland-scarceSingapore
37 rdquoPopulationWhitePaperASustainablePopulationforaDynamicSingaporerdquoNationalPopulationandTalentDivisionJanuary2013
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm
m2
AsianRealSnapShotOctober201325
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013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
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nden
t m
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r fir
ms
of t
he K
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ork
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affil
iate
d
26AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
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ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
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etw
ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
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pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
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he K
PM
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etw
ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
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013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
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ch t
he in
depe
nden
t m
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ms
of t
he K
PM
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ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
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013
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MG
Inte
rnat
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PM
G In
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atio
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PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
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wis
s en
tity
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whi
ch t
he in
depe
nden
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r fir
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he K
PM
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etw
ork
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iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
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KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
26AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
copy 2
013
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MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
In2011soaringhousingpricesinsomeareasandrisingcommoditypricesdrivenbyconsumptionofluxuryproductsledtowidespreadpublicdiscontentinTaiwan38Insomecasesthetaxonthesaleofshort-termownedbuildingandlandwerelittletononeThishaspromptedtheTaiwangovernmenttolearnfromUnitedStatesSingaporeSouthKoreaandHongKongandimplementtheSpecificallySelectedGoodsandServicestax(ldquospecialsalestaxrdquo)onshort-termownedbuildingandlandtransactionsTheaimofsuchpolicyistoaddresspublicdiscontentpromotetaxfairnessandahealthyhousingmarketandcreateahigh-qualitytaxsystemAnyunitofabuildingandtheshareoflandassociatedwiththeunitoranyurbanlandforwhichaconstructionpermitmaylawfullybeissuedownedforlessthanoneyearwouldincur15percentspecialsalestaxor10percentifthepropertyhasbeenowedformorethanoneyearbutlessthan(andincluding)twoyears
TominimizeunduespecialsalestaxburdenonthegeneralpublicTheSpecificallySelectedGoodsandServicesTaxAct(ldquoActrdquo)includesseveralexemptionsmainly
bull Theowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
bull Involuntarysaleofbuildingandland(iejobtransferinvoluntary separation from employment or any other involuntarycause)
bull Saleofcommodityobtainedthroughinheritanceorlegacy
bull Aunitofabuildingistransferredforthefirsttimeaftercompletionofconstructionbythebusinessentityor
bull Anownerusinghisorherownresidenceandlanddemolishesandrebuildsorentersintoajointconstructionandallocationprojectwithabusinessentityandsellshisorhershare
TheMinistryofFinance(ldquoMOFrdquo)alsoreleasedanumberofrulingsthereafterontheapplicabilityandnatureofexempttransactionsaswellasthecalculationmethodforthetwo-yearholdingperiodHowevertherearestilloutstandingissuesthatneedtobeclarifiedsuchas
A Merger exemptions1 Afterthemergeristhechangein
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
2 Afterthemergeristheholdingperiodpriortosaleofapropertycalculatedastheperiodstartingfromthedatethepropertywasacquiredbythedissolvedcompany
3 Ifthedissolvedcompanywasaconstructioncompanyafterthemergeristhetransferorsaleofabuildingunitforthefirsttimeaftercompletionstillexemptfromspecialsalestax
B Trust exemptions1 Wheretrustpropertyisdisposedofbythetrusteedoes
thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
2 Afterthesettlortransfersapieceofrealestatetothetrust and disposes of another piece of real estate does thespecialsalestaxexemptionapplyiftheowner(andownerrsquosspouseandlinealrelativesofminorage)neitherprovidesthebuildingandlandforbusinessusenorleasesitoutduringtheholdingperiod
3 Wheretrustpropertyisreturnedandthesettlorexecutessaleofrealestatebyhimselfistheholdingperiodcalculatedasstartingfromthedateofacquisitionpriortoits delivery to the trust
Taiwan
Recent developments in Specifically Selected Goods and Services Tax levied on real estate
38 ldquo行政院第3237次院會審查通過特種貨物及勞務稅條例草案rdquoCNANews10March2011
AsianRealSnapShotOctober201327
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013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
TheMOFhasstatedinJuly2013thatthenextstageofspecialsalestaxreformwillfocuson
bull includingnon-urbanlandandindustriallandinthescopeofassessmentforspecialsalestax
bull extendingholdingperiodbull extendingexemptionsrelatedtofirst-timebuyersand
involuntarysalesandbull relaxingpenaltyregulationsasspecialsalestaxevasions
areoftennominallysmallandunintentionalThepenalty-freethresholdisproposedtoberaisedtoNTD50000withexpectedcompletionandimplementationofsuchamendmentwithinthefirsthalfof2014
Additionallyacademicssuggestthatinordertocurbpropertyspeculationbuyersshouldalsobesubjecttospecialsalestaxationparticularlyfornon-residentswhopurchasepropertyinTaiwanorentitiesthatholdupalargeamountofrealestateConsideringthecurrentinvestmentmarketenvironmentthegovernmentshouldextendthetwo-yearholdingperiodandtherebyraisetheinvestmentcoststodiscouragethoseinvestorswithmassivecapitalonhandandthereforecaneasilywithstandsuchholdingperiodfrompropertyspeculationFurthermoreimposingadditionaltaxesonnon-residentsandextendingtheirshort-termholdingperiodasSingaporeandHongKonggovernmentshavedoneshouldalsobeanoptionFinallynon-urbanlandandagriculturallandshouldalsobeincludedinthescopeofandsubjecttospecialsalestaxation
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
Taiwan
39 ldquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May201340 rdquo檢討「奢侈稅」漏洞落實居住正義rdquoNationalPolicyFoundation6May2013
28AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
AsianRealSnapShotOctober201329
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
AsianRealSnapShotOctober201329
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
Vietnam
Obtaining Land Use Rights and associated financial obligations
ForeigninvestorscanenterVietnamrsquosrealestatemarketthroughinvestmentsinresidentialorcommercialprojectsinfrastructureprojectsandrealestaterelatedservicesHoweversomeactivitiesviewedaspuretradingofproperties(ietopurchasebuildingsforsaleorleasetoleasebuildingsforsubleasetoleasethelandforsubleasewithoutdevelopingtheinfrastructure)commoninotherjurisdictionsarenotallowedforforeigninvestorsinVietnam
TheLawonLandof2003generallyprovidesthatlandbelongstotheentirepeoplewiththeStateastherepresentativeownerAlllandinVietnamiscollectivelythepropertyoftheldquoentirepeoplerdquoandissubjecttounifiedadministrationbytheStateThereistechnicallynoprivateownershipoflandinVietnamallldquopersonsrdquo(individualsorentities)thathavelegalrightstouselandinVietnamareregardedasldquolandusersrdquothroughholdingaLandUseRight(LUR)certificate
LURsinVietnamareclassifiedintodifferenttypesofldquorightsrdquobasedontheirintendedusesuchasagriculturallandforestrylandindustrialuselandandresidentiallandSometypesoflandareonlyallowedtohavetheirpurposeofuseconvertedafterobtainingapprovalfromthecompetentauthoritiesHenceinvestorsneedtoensurethattheclassificationoftheLURisalsoqualifiedforthepurposeofthedevelopmentproject
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
Localinvestors(individualsorentities)canusealloftheabovemethodstoacquireaLURButforeigninvestorsarerestrictedtoacquiringlanduserightsAssuchaleasecanonlybegrantedtoaVietnameseincorporatedentity(whichmaybe100percentownedbyforeigninvestors)Nodirectleasetoforeigninvestors(alegalentityincorporatedoverseas)isallowed
UntilrecentlynearlyalloftherealestateprojectsweresetupintheformofjointventurewithparticipationoflocalpartnerswhowouldtypicallycontributeaLURastheirequitystakewhiletheforeignshareholderscontributecashorotherassets
Analternativeoptiontoobtainlandforrealestateprojectsistoleasethelanddirectlyfromthegovernmentusuallyforaperiodof50yearsInsomecasesapprovedbythePrimeMinister100percentforeign-investedcompaniesareallowedtoleaselandforupto70yearsTherentalpayments
canbemadeasaone-offpaymentfortheentireleasetermorannuallyWhentherentalamountispaidannuallythelanduserrsquosrightsoverthelandareverylimitedForexamplethelanduserisnotallowedtotransferormortgagetheLUR
Inpracticethereareanumberofwhollyforeign-investedrealestateprojectsdevelopingresidentialapartmentsHoweverduetothescarcityofprimelandespeciallyinmajorcitieslikeHoChiMinhandHanoimostrealestateprojectsarestillestablishedasjointventurewithlocalpartnerscontributingtheLURConvertingthesejointventures(withlocalownership)to100percentforeign-ownedcompaniesthroughthetransferofshareholdingcanbepossible
AnothertheoreticalwaytoaccesslandinVietnamwhichislesscommonisthattoexchangetheinfrastructureforaLURunderaBuildndashTransfer(BT)contractwiththegovernmentButthisapproachisrarelyseeninpracticeandwouldbesubjecttonegotiationwiththecompetentauthorityonthetermsandconditionsoftheBTcontractoftheinvestorsSofaronlyafewoftheseprojectshaveactuallybeenapproved
Associated financial obligations Property TaxPropertytaxisasomewhatconfusingtopicintothecontextofVietnamasthecountrydoesnotfollowinternationalnormsintaxationofpropertyThatsaidVietnamdoeshaveanon-agriculturallandusetax(NALUT)whichmaybeviewedasaformofldquopropertytaxrdquo
NALUTgenerallyappliestocertaintypesoflandSpecificallyitappliestoresidentiallandandlandusedfornon-agriculturalproductionandbusinesspurposesTaxpayersofthistaxmayincludeorganizationsandindividualsthathaveLURsortheentitythatisusingtheland
NALUTiscalculatedbymultiplyingthetaxablelandareawiththepriceofasquaremetreoftaxablelandandtheapplicabletaxratesThepriceofasquaremetreoftaxablelandissetbytheprovincialauthoritiesandtheapplicabletaxrateistheprogressivetaxraterangingfrom003percentto02percent
ItisworthnotingthatNALUTexemptionorreductionispossibleifcertainconditionsaremet
Land use fees land rental feesLandusefeesorlandrentalfeesareadditionalfeesappliedwhenthegovernmentallocatesorleaseslandtolandusers
GenerallylandusefeesaredeterminedbytheprovincialauthoritiesandkeptconstantduringaspecificperiodHoweverlandrentalratescanvarydependingonhowinvestorsobtaintheland(egpublicauctionornegotiationwithrelevantauthorities)
30AsianRealSnapShotOctober2013
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
Registration fee (or Stamp duty)RegistrationfeeisimposedonindividualsorganisationsuponregistrationforownershipoftheLURTherearesomespecificcaseswhentheregistrationfeeisnotapplicableincluding
bull landleasedfromallocatedbythegovernmentorbull capitalcontributionsintheformofLURs
RegistrationfeesareincurredwhenreceivinglandtransferredfromotherpartiesTheamountoftheregistrationfeepayablewouldgenerallybe05percentofthevalueofLURwhichisthelandpricesetbytheprovincialauthoritiesatthetimeofregistrationanditiscappedatVND500million(approximatelyUSD23800)foreachregistration
Value Added Tax (VAT)VATexemptionisapplicabletothetransferofaLURhencelandrentalorlandusefeespayabletothegovernmentwillnotbesubjecttoVAT
ThisisthegeneralruleanditiswelltestedHowevertherearesituationswherethetaxauthoritieswillinterpretatransfertobealdquorealestatebusinessrdquoatermwhichremainsvaguelydefinedforVATpurposesForsuchatransfertheauthoritiesmayattempttoapplya10percentVATtothetaxablepriceoftheldquorealestatebusinessrdquoinquestioncalculatingtheapplicableVATbasedonthesalespriceofthepropertyinvolvedintherealestatebusinessThuscaremustbetakentoensurethatthetransactionispurelyofaLURtransfernatureandnothingmoretopreventthepotentialincurrenceofVAT
OnsubsequentsalesofpropertyunitsbythedeveloperthatincludethecorrespondingtransferofaLURtothebuyersthereisanon-VATlandpricecomponentandthisisgenerallydeterminedbasedonhowthelandisacquiredForexampleifthelandisleasedfromthegovernmentforthedevelopment of houses for sale the deductible land value not subjecttoVATwouldbethelandrentalamountplustheexpensesoflandclearanceandcompensationAlternativelyifthelandisacquiredfromanotherorganisationorindividualthedeductiblelandpricewouldbethelandpriceatthetimeof acquisition plus the value of infrastructure if the land price at the time of acquisition could not be determined the land price set by the principal authorities at the time of acquisitionwillbeused
Corporate Income Tax (ldquoCITrdquo)ThetransferofLURsincludingbuildingsorengineeringworksandleaserightswouldbetreatedasrealestatetransfersandsubjecttoCITatcurrently25percentPleasenotethatthisratewillbereducedto22percentfrom1January2014andsubsequentlyto20
percentfrom1January2016onanygainThegainisdetermined at the transfer price less the historical cost (or remainingbookvalue)ofpropertiesanddeductibleexpensesrelatedtothetransfer
ForthetransferofaLURtheapplicablepricewillbethegreateroftheactualtransferpriceorthelandpricesetbytherelevantauthoritiesatthetimeofthesigningofthecontract
Personal Income Tax (PIT)ThetransferofLURsfromindividualownerswillbesubjecttoPITattherateofeither25percentonthegain(ietransferpricelesshistoricalcost)or2percentofthegrossproceedsIncasesupportingdocumentsarenotsufficienttoprovethehistoricalcostoftheLURorrelatedexpensesa2percentratewillbeappliedonthegrossproceedsofthetransaction
Other financial obligationsTherealestatebusinessinVietnamisgenerallyopentoforeigninvestorsHoweverconditionsapplyForexamplethe minimum charter capital required for a real estate companyisVND6billion41(approximatelyUSD285000)Therearealsobasicrequirementsofminimuminvestmentbasedonthesizeoftherealestateprojectforaresidentialprojectthatuseslessthan20hectaresoflandinvestorsmustcontributeequityequaltoatleast15percentofthetotalinvestmentcapitalandforaprojectthatuses20hectare or more land the basic minimum equity investment amountis20percent42
Forhousingdevelopmentprojectswithalandareaof10hectaresandaboveinvestorsmayberequiredtoallocate20percentoftheprojectrsquoslandareatobuildinglowincomehousingwiththeexpensesforclearanceandconstructionofinfrastructure on such land deducted from the land rental or landusefeepayabletothegovernment43
AlthoughrealestatetransactionsandinvestmentsinVietnamare not as transparent as those found in some of its neighbouringcountrieswithproperplanningandduediligencerealestateinvestmentinVietnamcanbeanattractiveoptionforforeigninvestors
41Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
42Article3DecreeNo1532007ND-CPSocialistRepublicofVietnam15October2007
43Article32DecreeNo712010ND-CPSocialistRepublicofVietnam23June2010
AsianRealSnapShotOctober201331
copy 2
013
KP
MG
Inte
rnat
iona
l Coo
pera
tive
(ldquoK
PM
G In
tern
atio
nalrdquo
) K
PM
G In
tern
atio
nal p
rovi
des
no c
lient
ser
vice
s an
d is
a S
wis
s en
tity
with
whi
ch t
he in
depe
nden
t m
embe
r fir
ms
of t
he K
PM
G n
etw
ork
are
affil
iate
d
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation
copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Hong Kong
The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International
Publication number HK-ASPAC13-0003
Publication date November 2013
Please contact us
KPMG in the Asia Pacific RegionAndrew WeirGlobalChairofRealEstateandConstructionT+85228267243Eandrewweirkpmgcom
Chris AbbissGlobalHeadofRealEstateTaxT+85228267226Echrisabbisskpmgcom
KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau
KPMG ChinaNelson LaiT+86(21)22122701Enelsonlaikpmgcom
KPMG in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn