ASIAN REAL SnapShot! Real Estate/Issue 2, November 2013 Current developments in the key real estate markets in Asia Pacific • Australia Tightening of debt deductibility rules • China Impact of China’s VAT reforms on the hospitality sector • Hong Kong The Double Stamp Duty • India New regulatory measures announced • Indonesia Land regulation reform and loan restriction • Japan New economic policies introduced • Singapore Introduction of the Total Debt Servicing Ratio framework • Taiwan Recent developments in Specifically Selected Goods and Services Tax levied on real estate • Vietnam Obtaining Land Use Rights and associated financial obligations
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ASIAN REAL SnapShot! · 2020-07-22 · SnapShot! Real Estate/Issue 2, November 2013 ... foundation of the Australian tax law for many years, which is ... ambitious reform program
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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
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
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
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
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
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
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
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
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
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
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
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
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
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
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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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FormanyyearsAustraliahasmaintainedathincapitalisationtaxregimetoimposeacaponthemaximumamountofdeductibledebtwhichcouldbeborrowedbyAustraliantaxpayersBothforeigninvestorslookingtomakeAustralianacquisitions and also Australian outbound investors must pay carefulattentiontotheserulesinstructuringacquisitionsRecentannouncementsbytheFederalGovernment1 in this areawillimpactthestructureoffutureacquisitionsandrequireananalysisofexistinginvestmentstoconfirmwhethertheywillcomplywiththenewlawgoingforward
What are the changesInaannouncementmadeinconjunctionwithAustraliarsquosmostrecentFederalBudgetinMay2013therewillbeanumberofchangestothethincapitalisationrulesAdditionalproposedchangestoAustraliarsquostransferpricingrulesareexpectedtofurtherimpactinvestmentstructures
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
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
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
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
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
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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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FormanyyearsAustraliahasmaintainedathincapitalisationtaxregimetoimposeacaponthemaximumamountofdeductibledebtwhichcouldbeborrowedbyAustraliantaxpayersBothforeigninvestorslookingtomakeAustralianacquisitions and also Australian outbound investors must pay carefulattentiontotheserulesinstructuringacquisitionsRecentannouncementsbytheFederalGovernment1 in this areawillimpactthestructureoffutureacquisitionsandrequireananalysisofexistinginvestmentstoconfirmwhethertheywillcomplywiththenewlawgoingforward
What are the changesInaannouncementmadeinconjunctionwithAustraliarsquosmostrecentFederalBudgetinMay2013therewillbeanumberofchangestothethincapitalisationrulesAdditionalproposedchangestoAustraliarsquostransferpricingrulesareexpectedtofurtherimpactinvestmentstructures
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
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
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
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
6AsianRealSnapShotOctober2013
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MG
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vice
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d is
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WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
Finallyinboundinvestorswillbeabletoaccesstheworld-widegearingtestunderthenewchanges(thistestiscurrentlyonlyavailabletooutboundinvestors)Whetherthisprovidesanybenefittoinboundinvestorsremainstobeseen Recent changes in transfer pricingRelatedpartydebtisnotonlysubjecttothethincapitalisationrules(intermsofthequantumofmaximumdeductibledebt)butalsotoAustralianrsquostransferpricingruleswhendeterminingtheappropriaterateofinterestoncross-borderdebtThegovernmentalsorecentlyintroducedchangestoupdateAustraliarsquostransferpricinglegislation3Animportantpracticalconsiderationrelatedtothechangesconcernstheimpactofpreparingcontemporaneoustransferpricingdocumentation(ormoreimportantlytheimpactofnotpreparingit)
ThenewtransferpricingruleswilldeemataxpayertonothaveareasonablyarguablepositioniftheydonotpreparetheappropriatetransferpricingdocumentationcontemporaneouslyThisisdefinedasthelodgementdateofthetaxreturnfortheyearinwhichtherelatedpartytransactionhasenteredintoInthelightofthetrendbyRevenueAuthoritiestochallengerelatedpartypositionsitisimperative to ensure the appropriate documentation is in placebeforelodgementoftherelevanttaxreturn
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
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
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
AninterestingdevelopmentwillbewhethertheshiftfromBT(ataxonbusiness)toVAT(ataxcollectedbybusinessbutultimatelyimposedontheendconsumer)willresultinashifttorsquoplusVATrsquopricingThatiswherepricesforaccommodationand other services are quoted to consumers on a price plus VATbasisCertainlythatistheexperienceincountrieslikeSingaporebutislegislativelyprohibitedinplacessuchasAustralia
4 ChinaTaxYearbook2012
6AsianRealSnapShotOctober2013
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vice
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ork
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AsianRealSnapShotOctober20137
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rnat
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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
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
BackgroundByfarthemostsignificantsectoryettotransitiontoVATistheconstructionandrealestatesectorNotonlydoesthissectoraccountforthemajorityofallBTrevenueraisedonanational basis4 but the potential impact on prices and demandinanindustrywhichhasbeenexperiencingphenomenallevelsofgrowthoverthelastdecadewillbewatchedwithinterest
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
Hotel owners ndash operating phaseHotelownerscurrentlyoperatingexistinghotelsgenerallyaccountfor5percentBTontheirrevenuefromaccommodationfoodandbeverageoutletsconferencesandeventsItisexpectedthateachoftheseactivitieswillbecomesubjecttoVATduringthelatterhalfof2014orearly2015(atthelatest)TheproposedrateofVATforthehospitalitysectorisnotyetknownbutthechoiceofVATrateislikelytobemadefromamongsttheexistingrates(6percent11percentand17percent)with11percentbeingspeculateduponasthemostlikelyoption
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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rnat
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WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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 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
AsianRealSnapShotOctober20137
copy 2
013
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MG
Inte
rnat
iona
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pera
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tern
atio
nalrdquo
) K
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G In
tern
atio
nal p
rovi
des
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lient
ser
vice
s an
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tity
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whi
ch t
he in
depe
nden
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ms
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he K
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ork
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affil
iate
d
China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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 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
China
WithmanyinternationalhotelbrandsservicingthebusinessconsumermarketafurtherquestionwillbewhetherbusinesseswillbeeligibletoclaiminputVATcreditsfortheaccommodation provided for the benefit of employees travellingforworkpurposesorattendingconferencesandeventsAtthisstagethegovernmenthasadoptedarelativelyconservativeapproachtoallowinginputVATcreditsforexpenditurewhichpotentiallycanbeeitherofapersonalorbusinessnaturendashforexamplenoinputVATcreditsarecurrentlyallowedfordomesticairtravelirrespectiveofitsnatureIftheVATchargedtobusinesscustomersiscreditablethiswouldgoalongwaytoassistinghotelownersintheirabilitytolsquopassonrsquotheVATtotheircustomersAfurtherissueofconsiderableinterestistheproposedVATtreatmentoffoodandbeverage(FampB)outletsIdeallyalloftheservicesprovidedinhotelswillbesubjecttoasingleVATratealthoughthepotentialfordifferentVATratestoapplytosomeservicesascomparedwithotherswouldseemhighInrelationtoFampBthereplacementofBTwithVATmayprovidethegovernmentwithanopportunityforconsiderablesimplificationAtpresentbroadlyspeakingFampBsoldatsupermarketsissubjecttoVAT(usuallyat17percent)whilethosesoldforconsumptionatthepremisesissubjecttoBT(at5percentwiththeVATbeingembeddedinthepriceoftheinputsbythesupplier)
Theimpositionofa17percentVATrateforFampBoutletswouldprovide an opportunity to remove the differential treatment betweenlsquoeatinrsquoandlsquotake-awayrsquoproductsndashbetweentheprovisionofgoodsandtheprovisionofserviceinarestaurantHoweverwhetherthisoccursremainstobeseen
Hotel brandsManyofthehotelbrandswhicharewellknowntothepublictypicallyenterintolicensingarrangementswithhotelownersThatisthelsquobrandnamersquoislicensedtothehotelownersinreturnforroyaltiespaidSimilarlythesebrandsoftenprovidevariousmarketingsupportservicestooLeavingasidethecross-borderaspectsofthesearrangementswhicharerelativelycommonplacethe
NotwithstandingthishotelbrandswillneedtocarefullyconsidertheirexistingcontractualarrangementswithhotelownersTheabilitytopassonVATisdependentonthetermsoftheircontractswiththehotelownersMoreoverinmanycases the hotel brands are remunerated on the basis of a percentageoftherevenuederivedfromthehotelrsquosoperationsWhetherthatrevenueshareisbasedontheVAT-inclusiverevenueortheVAT-exclusiverevenueisafurthercontractualissuewhichthepartieswillneedtoclarifyManyofthehotelbrandsalsooperateloyaltyschemesTheVATimplicationsoftheseloyaltyschemesrequireverycarefulconsiderationUndertheexistingBTrulesthereisnolsquodeemedsalesrsquorulerequiringBTtobeassessedonthemarketvalueofthebenefitsprovidedHowevertheVATrulesdocontainbroadlybasedlsquodeemedsalesrsquorulesThustheprovisionofafreenightrsquosaccommodationdiscountedmealorotherbenefittoloyalcustomersmaygiverisetosignificantVATimplications
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
ThefirstmeasureintroducedwasSpecialStampDuty(SSD)introducedwitheffectfrom20November2010ontransactions in residential property and is imposed at penal ratesrangingfrom5percentto15percentdependingonwhenthepropertyisboughtandsoldTheSSDappliestoresidentialpropertiesacquiredonorafter20November2010andresoldwithin24monthsorlessandisinadditiontotheadvaloremratesofStampDutyalreadyimposed(upto425percent)
Theproposedlegislationwillalsoputinplacearefundmechanism so that the acquisition of residential properties fortheconstructionofanewbuildingwillbeexemptedfromtheBSDThisisontheprovisothatthepropertiesbeingconstructedarecompletedwithinsixyearswithanextensionallowedinspecificcircumstances
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
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
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
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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 in Hong KongAlison SimpsonT+85221402248Ealisonsimpsonkpmgcom
KPMG in India Neeraj BansalT+911243074000Enbansalkpmgcom
KPMG in IndonesiaIwan AtmawidjajaT+62215740877Eiwanatmawidjajakpmgcoid
KPMG in JapanDavid LewisT+81(3)62298210Edavidblewisjpkpmgcom
KPMG in KoreaMarcus Joon Seok KwonT+82(2)21120735Ejoonseokkwonkrkpmgcom
KPMG in MalaysiaLamsang HewleeT+60377213388Elhewleekpmgcommy
KPMG in New ZealandRoss McKinleyT+6493675904Erdmckinleykpmgconz
KPMG in SingaporePhilip LeeT+6562132532Ephilipleekpmgcomsg
KPMG in TaiwanJudy ChienT+886(2)81016666Ejudychienkpmgcomtw
KPMG in ThailandVannaporn JongperadechanonT+6626772106Evannapornkpmgcoth
KPMG in VietnamVan Hien NinhT+84838219266Eninhvanhienkpmgcomvn
bull Consent of project affected familiesAnacquirerwouldhavetoseekconsentofnolessthan70percent(forPPPprojects)or80percent(forprivateprojects)ofprojectaffected families (families dependent on land for livelihood)
bull CompensationTheActrequirespaymentofcompensation of four times the market value in rural areas andtwicethemarketvalueinurbanareasinadditiontothe compensation for assets attached to the land (house treesplantsstandingcropsetc)
bull Resettlement and Rehabilitationanacquirerwouldhavetoprovide10typesofRampRentitlementstotheprojectaffectedfamiliesTheseincludeshousingemploymenttoonememberofeachprojectaffectedfamilyland(incaselandisacquiredforirrigationpurpose)transportationcostsubsistencegrantetcadditionallyanacquirerwouldhavetoprovide25infrastructuralamenitiesincaseofdisplacementofpopulation
bull Return of unused land in case land remains unused for 10yearsafteracquisitionthenewActempowerstheStatetoreturnthelandeithertotheownerortotheStateLandBank
bull Share in appreciated land value When the acquired landissoldtoathirdpartyforahigherprice20percentoftheappreciatedlandvalue(orprofit)hastobesharedwiththeoriginallandowner
The government is considering relaxing the foreign direct investment (FDI) norms in real estate sector
ThemajorchangesproposedfortheFDIfundedfirmsinthe real estatesectorarebull Relaxingthethree-yearlock-inperiodforforeigninvestorsbull ReducingminimumcapitalizationtoUSD5millionfrom
bull PermittingforeigninvestorstosellunderdevelopedplotsiftheIndiancompanyprovidesinfrastructureandundertakes development before occupancy (as per the plansapprovedbythestateauthorities)RelaxingadditionalapprovalsforhousingplotsfromalocalbodyorserviceagencyeitherbymeansofFDIorbytherecipientIndiancompanyasapre-requisiteforsellingsuchplotsisalsoindiscussion
Institutionalisation of real estate sector reforms RecentlythegovernmenthasinstitutionalisedseveralreformsintherealestatesectortomeetthelargeurbanhousingdeficitandsupportgrowthSomeofthemajorreformsare
Real Estate Bill a step towards the advancement of real estate sector
bull Fundscollectedfromtheallotteesmustbemandatorilydepositedinanescrowaccountonly30percentofthesefunds can be used in activities other than the developmentofaspecificproject
bull Detaileddisclosuressuchasinformationaboutpromotersprojectslayoutplansplanofdevelopmentworkslandstatuscarpetareanumberofplotsapartments booked status of statutory approvals name andaddressesofagentscontractorsarchitectandstructuralengineerarerequired
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
Valuations in the sector attractive due to liquidity constraints AstheeconomyandtherealestateexperienceaslowdownitisbecomingincreasinglychallengingfordeveloperstosecurefundingfortheirprojectsBanksandfinancialinstitutionshavetightenedtheirexposuretotherealestatesectorcitingcautiousmeasuresleavinghigh-costfinanceoptionssuchasnon-bankingfinancialcompanies(NBFCs)high-net-worthindividuals(HNIs)orprivateequities(PE)
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
Rising demand for branded and luxury residences amid slowdownTherealestatesectorhasevolvedsignificantlyoverlastdecadewitnessinganemergenceofseverallargedevelopershigherconsolidationabetterproductmixincreaseinscaleofdevelopmentandinfluxofforeignparticipantsWithcontinuousevolutionsomenewopportunitieshaveemergedinIndiarsquosreal
estatesectorwhichareprovidingthenextgrowthopportunityfordevelopersinthecurrentchallengingsituationsOnesuchopportunityisthedevelopmentofbrandedandluxuryresidences(generallyaboveUSD15million)inmajorIndiancitiesOutofover25000developersinIndiathereareonlyafewwhohavethenecessarycapabilityofmergingbrandedluxurywithhousingManydeveloperswhoarefacingtheheadwindsofslowdownaretryingtheirbestinthisfieldnevertheless lack of sophisticated development capability is provingtobeadeterrentforthem
Between2008and2012about182luxuryprojectscomprising25570unitsacrosstopsevencitiesofDelhi(includingGurgaonandNoida)MumbaiBengaluruChennaiHyderabadPuneandKolkatawerelaunchedwithavalueofaboutUSD30billion12Thiswasfuelledbythe150000HNIswhoareincreasinginnumbers at a fast rate13In2012itselfabout5000luxuryhousingunitswerelaunchedandalmostallofthemwereabsorbed14
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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 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
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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 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
Loan restrictions for real estate companiesIn1997BankIndonesiapublishedtheBankIndonesiaCirculationLetterNo302UKyear1997regardingBankLoanLimitationsforLandAcquisitionandPreparationUnderthisstipulation banks are prohibited to provide loans to property developers for land acquisition and preparation purposes whichlimitthesourceoffundsforpropertydevelopersConsequentlypropertydevelopersareexpectedtohaveastronginternalfundforaccumulatinglandandperformingpre-developmentactivitiesBankIndonesiarsquossurveyonseveralresidentialpropertydevelopersshowsthatmorethan50percentofthefinancingcompositionisfrominternalfundswhichresultmainlyfrompaid-incapitalandretainedearnings
Mortgage down payment restrictionsInMarch2012BankIndonesiamandatedaLoan-to-Value(LTV)ratioforresidentialpropertyborrowingsatamaximumof70percent20toraisetheminimumdownpaymentonhousingloansto30percentFinancialauthoritieshopetodiminishthepurchasingpowersofspeculatorsandtocurbpotentialpropertybubblesthatmayhurttheeconomy
RegardlessofthemeasuremajordeveloperscontinuedtopostimpressivesalesfiguresandpropertypricesisincreasingAsurveyconductedbyBankIndonesiareportedthatresidentialpropertysalesescalatedby1808percentquartertoquarterinthesecondquarterof2013andresidential property prices have increased on both quarterly (219percent)andannually(1211percent)forallhouse
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
apartmentownershiploanshavereachedIDR25986trillioninthesecondquarterof2013anincreaseof1230percentyear on year24-thisindicatesthatthemajorityofbuyersareusinghousingloanfacilities(KPRKPA)astheirmainsourceoffunding
implementthenewLTVregulationsaretomaintainfinancialsystemstabilityenlargepurchasingpowerforlowtomiddleclass families and enhance aspects of consumer protection inpropertysector
Source of Financing for purchasing houses in Primary and Secondary Market
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
2 TherestrictionsonbanksprovidingloansforpropertyusedascollateralThebankmayprovideloanonlyiftheproperty used as collateral has been completely built and readytobehandedoverTheexceptiontothisrestrictionissubjecttothefollowingconditions26bull First-timemortgagecustomersbull Thepropertydeveloperprovideassurancetocomplete
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
tenantsisusuallyatime-consumingandcostlyprocessButinpracticetheevictionofnon-fixedtermleasetenantscouldbecomerelativelyeasierifthebuildingisnon-earthquakeproofedandapproximately40percentofthetenantsinthebuildingareunderfixed-termleasecontractsInthiscasenon-fixedtermtenantswilllikelybecapableofevictionuponmaturity of their lease term if their eviction is necessary to renovatethebuildingtomakeitearthquakeproof
We may see a further increase in construction costs especiallylabourcostwiththeadditionalconstructionleadinguptothe2020OlympicGamesinTokyoWhenconsideringinvestmentinadevelopmentprojectinJapaninvestors are advised to factor in the potential impact of the countryrsquosrisingconstructioncosts
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
Residential sector Strongbuyingsentimentintheresidentialsectorpost-GFCcontributedtounprecedentedpricegrowthof55percent(asatQ22013)sincethelasttroughinQ22009ToensureastableandsustainablepropertymarketthegovernmenthasrespondedwithsevenroundsofcoolingmeasuresfocusedontheresidentialmarketwiththelatestroundinJanuary2013Eventhoughtransactionvolumefellinthefirstfewmonthsaftertheintroductionofeachroundofcoolingmeasures purchase demand remained robust supported by positiveeconomicgrowthandlowinterestratesDevelopersaleshitanewrecordofabout22000unitsin2012andwhilepriceshavecontinuedtoincreasethepaceofgrowthhasslowedfrom46percentin2011to26percentin2012andto22percentinthefirsthalfof2013
OurstudyontheimpactoftheTDSRframeworkontheresidential sector36showsthattheTDSRframeworkonitsownisexpectedtohavelimitedimpactonpurchasedemandfor the first and second private residential property for most householdsThisisdespiteareductionofabout30percentinthemaximumquantumofthepropertytheycannowpurchaseAnecdotallytransactionsnowtakelongertocloseastheloanapprovalprocessislengthierDevelopersalesfellbymorethan70percentinJuly2013aftertheTDSRframeworkwasimplementedHoweverthefallindevelopersaleswasalsopartlyduetofewerlaunchesduringthemonth
Industrial and commercial sectors AsmorecoolingmeasurestargetingtheresidentialsectorwereintroducedinvestorsturnedtotheindustrialandcommercialsectorsasalternativesTherewasanincreaseinthenumberoftransactionsforstrata-titledindustrialandcommercialpropertiesaftertheABSDintheresidentialsectorwasfirstimplementedinDecember2011IndustrialpropertieswerepopularamongstinvestorsastherequiredquantumwasusuallylowerCorrespondinglyindustrialpriceshavedoubledsincethepreviouslowin2009duringtheGFCregisteringthefastestpaceofgrowthacrossallsectors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
registration(reasonlistedascorporatemerger)ofrightsandobligationspertainingtoanypropertiesacquiredfrom the dissolved company by the survivingcompanyorthenewlyincorporated company considered withinthescopeofspecialsalestax
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
AlthoughtheActhasbeenineffectformorethantwoyearsimplementationresultsoftheoriginallegislationhavebeenfallingshortofgovernmentexpectationsActualspecialsalestaxrevenuedidnotmeetoriginalestimationsandthetaxhasonlycurbedhousingtradingvolumeratherthanstoppingtheupwardpricemovement39Besidesincreasingthetaxbasepreventative measures should also be developed to tackle thosecommontaxevasionschemessuchashouseholdregistrationsellingonebeforebuyingtwohomestradingundertheguiseofrealestatetrustsandfakedivorces40Itisimportantthattheseoutstandingissuesbeaddressedandconfusionsclarifiedtoallownormalmarketactivitiestoberestoredassoonaspossible
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
LURs for real estate projects GenerallyaLURmaybeconferredtothelanduserbyoneofthefollowingmethods(i)allocation(ii)leaseor(iii)recognitionthattheLURbelongstothelandusersthatarecurrentlyusingthelandonastablebasisAmonglocalVietnameseinvestorsthesaleortransferofaLURisallowedbutthisoptionisnotavailableforforeigninvestors
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
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
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
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
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
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 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