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

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

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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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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

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

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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

KP

MG

Inte

rnat

iona

l Coo

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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

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he K

PM

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affil

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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

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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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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

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

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depe

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t m

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he K

PM

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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

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r fir

ms

of t

he K

PM

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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

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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PM

G In

tern

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nal p

rovi

des

no c

lient

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vice

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d is

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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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PM

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tern

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rovi

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no c

lient

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ch t

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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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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

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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PM

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PM

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tern

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rovi

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vice

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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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PM

G In

tern

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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AsianRealSnapShotOctober20137

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PM

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tern

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PM

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tern

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rovi

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no c

lient

ser

vice

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d is

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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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PM

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PM

G In

tern

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rovi

des

no c

lient

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vice

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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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PM

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rovi

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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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rovi

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vice

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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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PM

G In

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rovi

des

no c

lient

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vice

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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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013

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rovi

des

no c

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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

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rnat

iona

l Coo

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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

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

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

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r fir

ms

of t

he K

PM

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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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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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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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tern

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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

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KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom

KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy

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KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn

AsianRealSnapShotOctober20133

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PM

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tern

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rovi

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no c

lient

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vice

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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

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

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r fir

ms

of t

he K

PM

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etw

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

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

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

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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of t

he K

PM

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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

KP

MG

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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

with

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ch t

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depe

nden

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PM

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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

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rnat

iona

l Coo

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tive

(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

a S

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tity

with

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ch t

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nden

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of t

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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

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iona

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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

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nden

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of t

he K

PM

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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

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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

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tity

with

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ch t

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depe

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of t

he K

PM

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are

affil

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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

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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013

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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

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tity

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ch t

he in

depe

nden

t m

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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

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rnat

iona

l Coo

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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

26AsianRealSnapShotOctober2013

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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

) 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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ms

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he K

PM

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ork

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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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rnat

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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

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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

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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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PM

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tern

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rovi

des

no c

lient

ser

vice

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d is

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depe

nden

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are

affil

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AsianRealSnapShotOctober201329

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013

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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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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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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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PM

G In

tern

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rovi

des

no c

lient

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vice

s an

d is

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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

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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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PM

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tern

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rovi

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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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PM

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rovi

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lient

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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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MG

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rovi

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lient

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vice

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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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PM

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rovi

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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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rnat

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l Coo

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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

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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

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

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

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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

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

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013

KP

MG

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rnat

iona

l Coo

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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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of t

he K

PM

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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

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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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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

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

whi

ch t

he in

depe

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t m

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he K

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iate

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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

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r fir

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of t

he K

PM

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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

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013

KP

MG

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rnat

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tive

(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

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

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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013

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PM

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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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tity

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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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PM

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tern

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nal p

rovi

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no c

lient

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vice

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d is

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ch t

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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

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PM

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tern

atio

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PM

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tern

atio

nal p

rovi

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no c

lient

ser

vice

s an

d is

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tity

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ch t

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depe

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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

G In

tern

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rovi

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lient

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vice

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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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rovi

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lient

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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

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

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KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth

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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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rovi

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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

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

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ms

of t

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ork

are

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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

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

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r fir

ms

of t

he K

PM

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etw

ork

are

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

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

whi

ch t

he in

depe

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of t

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PM

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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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MG

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rnat

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tive

(ldquoK

PM

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tern

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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

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depe

nden

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PM

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are

affil

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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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rnat

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tive

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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

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tity

with

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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

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013

KP

MG

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tive

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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

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tity

with

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ch t

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of t

he K

PM

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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

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iona

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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

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tity

with

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ch t

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of t

he K

PM

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are

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iate

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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

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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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

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tity

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whi

ch t

he in

depe

nden

t m

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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

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rnat

iona

l Coo

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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

26AsianRealSnapShotOctober2013

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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

) 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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he K

PM

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ork

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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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rnat

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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

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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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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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PM

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tern

atio

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rovi

des

no c

lient

ser

vice

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d is

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nden

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are

affil

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AsianRealSnapShotOctober201329

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013

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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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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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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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PM

G In

tern

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rovi

des

no c

lient

ser

vice

s an

d is

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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

KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth

KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn

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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rovi

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vice

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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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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

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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

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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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tive

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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

s en

tity

with

whi

ch t

he in

depe

nden

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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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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

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rnat

iona

l Coo

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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

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r fir

ms

of t

he K

PM

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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

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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

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

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ch t

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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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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

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KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy

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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

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

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

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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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PM

G In

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rovi

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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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PM

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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

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KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom

KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom

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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

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

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

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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rovi

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AsianRealSnapShotOctober201329

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rovi

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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

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rovi

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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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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

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

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

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

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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

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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

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tity

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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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) 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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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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PM

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PM

G In

tern

atio

nal p

rovi

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no c

lient

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vice

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d is

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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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PM

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rovi

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lient

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vice

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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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PM

G In

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rovi

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no c

lient

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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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PM

G In

tern

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nal p

rovi

des

no c

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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PM

G In

tern

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rovi

des

no c

lient

ser

vice

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d is

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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

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

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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

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

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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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

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MG

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rnat

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l Coo

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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

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r fir

ms

of t

he K

PM

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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

KP

MG

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rnat

iona

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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

s en

tity

with

whi

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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are

affil

iate

d

AsianRealSnapShotOctober201329

copy 2

013

KP

MG

Inte

rnat

iona

l Coo

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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

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depe

nden

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ms

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he K

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ork

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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

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ch t

he in

depe

nden

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he K

PM

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ork

are

affil

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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

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

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r fir

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he K

PM

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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

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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

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

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atio

nalrdquo

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PM

G In

tern

atio

nal p

rovi

des

no c

lient

ser

vice

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d is

a S

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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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tive

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PM

G In

tern

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nal p

rovi

des

no c

lient

ser

vice

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d is

a S

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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

copy 2

013

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MG

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rnat

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tive

(ldquoK

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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with

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ch t

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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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rovi

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no c

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vice

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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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PM

G In

tern

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rovi

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no c

lient

ser

vice

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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

KP

MG

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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

s en

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with

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ch t

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depe

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he K

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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

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PM

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tern

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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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26AsianRealSnapShotOctober2013

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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

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tern

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rovi

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no c

lient

ser

vice

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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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PM

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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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tity

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depe

nden

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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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PM

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rovi

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no c

lient

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vice

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affil

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AsianRealSnapShotOctober201329

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rovi

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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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PM

G In

tern

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rovi

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lient

ser

vice

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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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PM

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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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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

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

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

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rnat

iona

l Coo

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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

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

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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

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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

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

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

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rnat

iona

l Coo

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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

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he K

PM

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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

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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

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

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013

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MG

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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

ser

vice

s an

d is

a S

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ch t

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he K

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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

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tive

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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

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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

KP

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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

wis

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tity

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ch t

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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

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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

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(ldquoK

PM

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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

a S

wis

s en

tity

with

whi

ch t

he in

depe

nden

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of t

he K

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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

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ms

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he K

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ork

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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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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

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

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013

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MG

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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

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ch t

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depe

nden

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he K

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are

affil

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d

AsianRealSnapShotOctober201329

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013

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MG

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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

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d is

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ch t

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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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rnat

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PM

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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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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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PM

G In

tern

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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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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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PM

G In

tern

atio

nal p

rovi

des

no c

lient

ser

vice

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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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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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PM

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PM

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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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013

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PM

G In

tern

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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

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26AsianRealSnapShotOctober2013

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013

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PM

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tern

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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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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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PM

G In

tern

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rovi

des

no c

lient

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vice

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d is

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depe

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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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lient

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affil

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AsianRealSnapShotOctober201329

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PM

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rovi

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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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PM

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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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lient

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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

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

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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013

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MG

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rnat

iona

l Coo

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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

depe

nden

t m

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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

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rnat

iona

l Coo

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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

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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

26AsianRealSnapShotOctober2013

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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

) 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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he K

PM

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ork

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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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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

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tity

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ch t

he in

depe

nden

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ms

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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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PM

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tern

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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affil

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AsianRealSnapShotOctober201329

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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

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ch t

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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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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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PM

G In

tern

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rovi

des

no c

lient

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vice

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d is

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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

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

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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

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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

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of t

he K

PM

G n

etw

ork

are

affil

iate

d

AsianRealSnapShotOctober201323

copy 2

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

whi

ch t

he in

depe

nden

t m

embe

r fir

ms

of t

he K

PM

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etw

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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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rnat

iona

l Coo

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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

depe

nden

t m

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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

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rnat

iona

l Coo

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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

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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

26AsianRealSnapShotOctober2013

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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

) 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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he K

PM

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ork

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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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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

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tity

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ch t

he in

depe

nden

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ms

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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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PM

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tern

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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affil

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AsianRealSnapShotOctober201329

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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

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ch t

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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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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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PM

G In

tern

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rovi

des

no c

lient

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vice

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d is

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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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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

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tity

with

whi

ch t

he in

depe

nden

t m

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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

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of t

he K

PM

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etw

ork

are

affil

iate

d

AsianRealSnapShotOctober201323

copy 2

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

whi

ch t

he in

depe

nden

t m

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he K

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are

affil

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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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013

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rnat

iona

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tive

(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

a S

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tity

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ch t

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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

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rnat

iona

l Coo

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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

26AsianRealSnapShotOctober2013

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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

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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he K

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ork

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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

copy 2

013

KP

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

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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r fir

ms

of t

he K

PM

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affil

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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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PM

G In

tern

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rovi

des

no c

lient

ser

vice

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d is

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ch t

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depe

nden

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he K

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are

affil

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d

AsianRealSnapShotOctober201329

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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

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d is

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ch t

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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

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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

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depe

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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PM

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PM

G In

tern

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nal p

rovi

des

no c

lient

ser

vice

s an

d is

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wis

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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

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

l Coo

pera

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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

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

26AsianRealSnapShotOctober2013

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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

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ms

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he K

PM

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ork

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affil

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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

iona

l Coo

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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

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rnat

iona

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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

AsianRealSnapShotOctober201329

copy 2

013

KP

MG

Inte

rnat

iona

l Coo

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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

whi

ch t

he in

depe

nden

t m

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ms

of t

he K

PM

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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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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

whi

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

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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

copy 2

013

KP

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

with

whi

ch t

he in

depe

nden

t m

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he K

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ork

are

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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

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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

KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn

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

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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

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

copy 2

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

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

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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

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

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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

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

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r fir

ms

of t

he K

PM

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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

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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

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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iate

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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

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

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

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tity

with

whi

ch t

he in

depe

nden

t m

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he K

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ork

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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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rnat

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tive

(ldquoK

PM

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atio

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) K

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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tity

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ch t

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nden

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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

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rnat

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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

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tity

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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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rnat

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(ldquoK

PM

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tern

atio

nalrdquo

) K

PM

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

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nden

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he K

PM

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ork

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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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PM

G In

tern

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nal p

rovi

des

no c

lient

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vice

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d is

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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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lient

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vice

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AsianRealSnapShotOctober201329

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rovi

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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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PM

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rovi

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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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rovi

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no c

lient

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vice

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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

KPMG AustraliaSteve GattT+61(2)93357303Esgattkpmgcomau

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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

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

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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

KP

MG

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rnat

iona

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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

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he K

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are

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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

copy 2

013

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MG

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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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tity

with

whi

ch t

he in

depe

nden

t m

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r fir

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of t

he K

PM

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etw

ork

are

affil

iate

d

26AsianRealSnapShotOctober2013

copy 2

013

KP

MG

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rnat

iona

l Coo

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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

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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

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tive

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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

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tity

with

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ch t

he in

depe

nden

t m

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ms

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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l Coo

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tive

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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

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tity

with

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ch t

he in

depe

nden

t m

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he K

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etw

ork

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affil

iate

d

AsianRealSnapShotOctober201329

copy 2

013

KP

MG

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rnat

iona

l Coo

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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

depe

nden

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ms

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he K

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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

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rnat

iona

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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

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he K

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ork

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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

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rnat

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PM

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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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wis

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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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013

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rovi

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AsianRealSnapShotOctober201323

copy 2

013

KP

MG

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PM

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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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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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PM

G In

tern

atio

nal p

rovi

des

no c

lient

ser

vice

s an

d is

a S

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depe

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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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PM

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tern

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rovi

des

no c

lient

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vice

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d is

a S

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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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rnat

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tive

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PM

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atio

nalrdquo

) K

PM

G In

tern

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nal p

rovi

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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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he K

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ork

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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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PM

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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

a S

wis

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tity

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ch t

he in

depe

nden

t m

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he K

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affil

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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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PM

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tern

atio

nal p

rovi

des

no c

lient

ser

vice

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d is

a S

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tity

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ch t

he in

depe

nden

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he K

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ork

are

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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PM

G In

tern

atio

nal p

rovi

des

no c

lient

ser

vice

s an

d is

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tity

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ch t

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depe

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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

tern

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rovi

des

no c

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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PM

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rovi

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no c

lient

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vice

s an

d is

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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

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KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth

KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn

AsianRealSnapShotOctober201323

copy 2

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rnat

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PM

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PM

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tern

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rovi

des

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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(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

s en

tity

with

whi

ch t

he in

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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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PM

G In

tern

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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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26AsianRealSnapShotOctober2013

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013

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MG

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rnat

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PM

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nalrdquo

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PM

G In

tern

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nal p

rovi

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no c

lient

ser

vice

s an

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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PM

G In

tern

atio

nal p

rovi

des

no c

lient

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vice

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tity

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depe

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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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PM

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tern

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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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affil

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AsianRealSnapShotOctober201329

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PM

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tern

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rovi

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no c

lient

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vice

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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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rovi

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lient

ser

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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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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 in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn

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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iona

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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

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d is

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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

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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

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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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ork

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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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rnat

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PM

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atio

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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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tity

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ch t

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depe

nden

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PM

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ork

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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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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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tity

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ch t

he in

depe

nden

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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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AsianRealSnapShotOctober201329

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PM

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rovi

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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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PM

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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

copy 2

013

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PM

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tern

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rovi

des

no c

lient

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vice

s an

d is

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wis

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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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KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth

KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn

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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rnat

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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

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

26AsianRealSnapShotOctober2013

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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

) 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

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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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013

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MG

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rnat

iona

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tive

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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

embe

r fir

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he K

PM

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etw

ork

are

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

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

depe

nden

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ms

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he K

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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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rnat

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PM

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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

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ch t

he in

depe

nden

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he K

PM

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ork

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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

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l Coo

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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

whi

ch t

he in

depe

nden

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ork

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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

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

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

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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

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wis

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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

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

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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

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

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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