Land tax collection delays, not deters IPOs
By Hu Yuanyuan (China Daily)Updated: 2007-03-01 09:36
Tax collection on land appreciation began on February 1,
but it hasn't diminished Chinese property developers' determination to raise
money from the Hong Kong stock exchange, although their financing plans were
delayed a bit.
As the Hong Kong exchange took time to understand the tax's impact on the real estate sector, the hearing of Shenzhen-based Hong Long Real Estate Co was delayed for a week, but finally given the go-ahead.
The developer plans to raise as much as HK$515 million by selling 250 million shares, with a range set between HK$1.43 and HK$2.06.
"Two of our clients' initial public offering (IPO) plans on the Hong Kong bourse were also postponed," Hung Tao, director of Savills Property Services (Beijing) Company, said.
"But the shock is temporary," Hung added, saying the tax will not stop mainland property developers' entry into Hong Kong's capital market.
The State Administration of Taxation decided to resume collection of value-added tax (VAT) on land on January 16. According to the notice, property developers will have to pay 30 to 60 percent of their net gains as VAT on land.
"The land appreciation tax may squeeze 20 percent out of property developers' margins," said Cai De'an, president of Zhong Guang Xin Real Estate Consultation.
As the tax lowered investor expectations for property profit, most mainland property shares saw a drop ranging from 5 percent to 8.5 percent on January 17.
According to Zhao Qiang, an analyst with Everbright Securities, property developers have to adjust their IPO timetables since the tax will make them revalue both their profit expectations and assets.
Due to spiraling property prices across the country, the government has taken
a range of measures to restrain the runaway sector, including a more stringent
policy on bank financing. Measures include increasing the capital threshold for
developing new projects and prohibiting the granting of mortgages before
completion of a project's main building.
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