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- Stephen Chung
- Zeppelin Real Estate Analysis Limited ©
- For RICS – Toronto and Boston Chapters
- For OIQS, Toronto, Ontario, Canada
- For York University
- September to October, 2006
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- This power point has been presented as part of an informative session to
audiences in the Fall of 2006 from the:
- A) Ontario Institute of Quantity Surveyors
- B) Royal Institution of Chartered Surveyors – Toronto and Boston
Chapters
- C) Schulich Business School of York University
- Executive Summary: China is on an economic growth path notwithstanding
challenges and hurdles along the way. As such, its real estate markets
will offer good investment potentials given proper investment resource,
return, and risk parameters.
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- Content contained herein:
- Scale and size of the China real estate markets
- Supply and demand situations
- Market indexes
- Market prices per building floor area
- Return comparisons between major markets
- Volatility comparisons between major markets
- Basic real estate market environments
- Basic tax rates
- Macro factors
- Suggestive investment strategies
- Opportunities for related foreign professionals
- Resources
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- China = 1,300,000,000+ people
- China GDP = US$2,230,000,000,000
- China GDP / capita = US$1,715
- China Area = a bit smaller than USA at 9,596,960 km2 (3,704,426 mi2)
- China = Rich Coastal / East Region and Poorer Central and West Regions
- China Economy = Industrial + Agriculture + Services
- Urban : Rural = US$5,000 : US$1,000
- Societal = Ancient + Modern
- Administrative = Market + Planned
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- Focus = China Commodity (Private) Real Estate Market
- Sectors = Residential, Office, and Retail
- At turn of century = China went from a residence-allocation system
(public) to a (private) home market system
- Public still dominates, but private market is gradually growing
- Foreign ownership permitted, lately more regulations
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- Private Real Estate Market 2005: US$200B Invested (US$1 = 8.11Yuan)
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- China going from US$1,500 per capita to US$3,000, not really that
difficult
- Urbanization process from 40% urban to 60% urban in 20 years
- Emerging middle class
- Desire to upgrade
- 12-18% IRR, keen competition
- Rental yield 8-12%, before tax
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- Market information getting better, still room to improve
- Design & Construction practices improving
- Planned & Market Economics
- Administrative & Economic Measures e.g. via interest rates
- Legal and Financial infrastructures & WTO
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- Favors Long Term, Not Short
- Vacancy, not evenly distributed
- Volatility, could be high
- Offshore investment operations may need to set up local entities
- Some inefficient use of resources
- Banking practices to improve
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- Recent market cooling measures favor the strong
- Look beyond real estate aspects
- Social harmony
- Central & Local governments
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- Don’t over-leverage
- Note competitors’ supply
- Note transaction costs
- Maintain cash position
- Exit options & planning
- REITS (using Hong Kong)
- Build what locals can’t (yet)
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- Individual income is taxed progressively from 5% to 45%
- Companies are taxed at 33% in 2005
- Capital gains tax is 20% for individuals
- Real estate capital gains tax starts from 20% based on profit margins
- National and local taxes
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- Property rights are protected under the law and foreigners can acquire
real estate in China
- Mortgages: NO complex but just simple ones up to 30 years
- Mortgages rates broadly in line with those in the USA
- Residential rental leases normally within 1 to 5 years
- Office rental leases normally within 1 to 3 years
- Work with tax advisors
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- Land is owned by the state
- Land is leased (leasehold)
- Residential = 70 years
- Commercial = 40 years
- Industrial = 50 years
- Pay land grant fee upfront
- Law of Land Administration
- Interim Rules on Sale and Transfer of State Land's Use Rights in Cities
and Towns
- Regulations on Development and Management of Tracts of Land by Foreign
Investors etc
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- Similar to other jurisdictions in the world, there are administrative
and governmental processes for land use, right of use, land title,
building application, design approval, construction monitoring, cost
budgeting, occupancy, closing, presale, and the like
- Foreign know-how in demand e.g. a design by foreign architects may help
sell a project
- Foreign professionals will have to work with or through China-licensed
counterpart professionals
- Competition is also very keen and the locals are acquiring overseas
professional recognitions too
- Land acquisition mostly handled by government
- Auction is encouraged or even mandatory (difference in interest between
central and local governments at times)
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- Similar to jurisdictions in the world, China runs a system of
professional qualification, registration, and licensing systems
- Applies to professionals, from lawyers, accountants etc to engineers,
surveyors, architects, real estate agents etc
- More complex company registration process e.g. a minimum capital input
- May have practicing categories
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- China is probably NOT for everyone
- One must have:
- Patience (time)
- Perseverance
- Persistence
- Empathy for different cultures
- Interest in different societies
- Sole Proprietor / Foreign Owned
- Joint venture with a local group
- Start with major cities first
- English is not widely used but people seem keen to learn it
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- Prestigious offices in major cities are NOT inexpensive = total
operating expense could be US$40/ft2/year or more (Shanghai)
- Good quality apartments could fetch US$’,000 per month
- Salaries and wages are rising, especially for the educated, skilled and
competent
- Project scales are huge e.g. a 1,500,000ft2 project may be considered
mid-scale in some cities
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- Government agencies
- Business consultants
- Professional institutes e.g. the Hong Kong Institute of Surveyors
- Trade development councils
- Professional acquaintances
- Or simply contact us!
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- Scope: Real estate development, investment, and management in China
including Hong Kong
- Sectors: Residential, office, retail, industrial, and hotel / resort
real estate
- Operations: Beijing, Shanghai, Shenzhen, Hong Kong etc
- Clients: Real estate developers, investors, corporate users,
industrialists etc
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- Asset Management: Real Estate Analysis, Investment Strategy, Portfolio
Allocation
- Project Management: Design Coordination, Contract Administration, Budget
Control
- Facility Management: Utilization Assessment, Premises Planning, Building
Maintenance
- Marketing Management: Campaign Planning, Promotion Strategy, Sales &
Leasing
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- Real estate groups assess the potentials of the China real estate
markets with regards to their investment requirements and resources [Is
China right for you?]
- Real estate groups allocate their resources in the best possible
effective and efficient manner [Where? What? When? Who? Why?]
- Real estate groups achieve the best possible investment return and risk
combination [How?]
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- Helping real estate developers, home builders, and funds, set up a
viable investment team operation and business network in China
- Helping industrialists and manufacturers build up their production
facilities and complexes
- Liaising with various governmental authorities and bureaucracies
- Coordinating the effort and input of other experts e.g. tax advisors,
legal advisors, financiers etc
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- You are welcomed to visit:
- www.real-estate-tech.com
- Our real estate analytical website with a focus on China including Hong
Kong
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- References:
- www.ChinaDaily.com.cn
- www.stats.gov.cn
- www.cei.gov.cn
- www.soufun.com
- www.lehmanlaw.com
- China Economic Review
- Land Search Reports
- Miscellaneous publications
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- Thank You
- Stephen Chung
- Managing Director & Director of Assets
- Zeppelin Real Estate Analysis Limited
- Zeppelin Property Development Consultants Limited
- www.real-estate-tech.com
- Important note: the content contained here is for basic reference by
intended parties only and investors should seek proper advice and
consultation prior to making investment decisions. Zeppelin or its
directors, managers, executives, staff members, consultants, advisors,
associates, affiliates, and / or other related parties or persons take
NO responsibility or liability for losses, damages, claims, and the
like, monetary or otherwise, arising out of the content contained
herein.
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