Relaxing and diversifying real estate

This article is from the Real Estate & Construction chapter of the 2015 Annual Review and is available for download here.


Huijun Ma and Jiong Zhang of Zhong Lun Law Firm explain everything foreign investors need to know about real estate and construction projects in China, from investment structures and financing methods to taxes and contracts

1. Which important foreign investment policies in the real estate sector have been issued in China within the past year? How do they affect cross-border transactions?

In the past year, China issued a series of regulations and policies aimed at relaxing controls on foreign investment in the real estate industry, further easing the macro policy environment faced by cross-border real estate projects in China. More specifically, the Ministry of Commerce (MOFCOM) has simplified the record filing procedure for foreign-invested real estate enterprises, delegating the record filing authority to provincial-level commerce departments. According to the Circular on the Issuance of the List of Investment Projects Subject to Government Check and Approval (2014) issued by the State Council in October 2014, local governments have the right to decide at their own discretion whether urban construction projects, other than those on the List of Investment Projects Subject to Government Check and Approval, are subject to check and approval or record filing. Based on this, the provinces, municipalities and autonomous regions have issued related lists, with some placing real estate (including foreign-invested real estate) on the list of projects subject to check and approval, but the majority not doing so, signifying that record filing will be all that is required for foreign-invested real estate projects. The adjustment that has drawn the most attention is the complete deletion from the Foreign Investment Industrial Guidance Catalogue (Amended in 2015), promulgated by the National Development and Reform Commission and MOFCOM, of real estate-related industries that have been in the restricted category since 1995 (for details, please see below).

2.What are some of the most significant real estate deals from the past 12 months?

In the past year or so, what has stood out most and repeatedly occurred in major real estate transactions in China is the association and cooperation between real estate enterprises. Some examples include: the Wanda Group and Vanke Group's announcement to establish a strategic cooperative relationship to leverage their respective strengths and achievea win-win situation; Sunac's acquisition of a 24.313% equity interest in Greentown (subsequently suspended, however); and Sincere Group and TusHoldings' announcement of their establishment of TusSincere Science City Investment (Group) dedicated to investing in and developing the Science City and the park's operation. With the increasingly fierce competition in the real estate market, we are likely to see more asset restructurings, mergers and acquisitions as enterprises strive to resolve capital chain crises and enhance their competitiveness.

3. How have policies and regulations soothed the cooling real estate market?

In 2015, state policies on controlling the real estate market have remained relatively steady, trending on the whole toward relaxation. Adjustments have been made both at the supply and demand ends, aimed at realising the uptake of the existing stock of premises and resolving the problem of supply exceeding demand. At the supply end, the state is implementing the principle of “limitation on supply”, where, in areas with a high supply of residential housing, supply is to be reduced or suspended. Meanwhile, the state is stimulating demand such as by lowering the percentage of the down payment on the purchase of housing, implementing a tiered loan policy and reducing transaction taxes. With the exception of the four top-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen, and a small number of other cities, various regions are eliminating purchase restriction policies in different ways. In terms of capital, the state is gradually relaxing the restrictions on capital market financing by real estate enterprises.

4. What are foreign investors carrying out construction projects in China most concerned about? How do they address these concerns?

According to current Chinese laws, with the exception of a small number of special projects, the majority of construction projects require an invitation of bids conducted in accordance with the law. Although certain local governments have shown a trend toward relaxing the requirements on foreign-invested projects, the majority of local governments still strictly implement the regulations for the administration of bidding. Usually, foreign investors tend to favour using versions of construction contracts they are more familiar with, e.g. FIDIC. With respect to projects for which an invitation for bids is required, the record filing departments generally require using the government's standard version and carrying out the contract record filing procedures. During the contract record filing process, the government departments will conduct a substantive review of the contents of the contract. To a certain extent, this may affect or even change the contract risk allocation principle determined between the investor and contractor. Certain investors will seek to circumvent this review by electing to separately execute agreements outside the contract being filed for the record. However, the validity of such separately-executed agreements is subject to doubt, thus exposing the investors to new risks.

5. What types of investment structures have recently been favoured by real estate private equity funds and why? What are the characteristics of each method?

The investment structure of real estate private equity funds has not seen any marked changes, with the majority still giving consideration to preferred, least preferred and intermediate structuring, and requiring security from, and buy back by, the party seeking the financing. The “share in name, bond in reality” financing method is also still widespread. There has also been an increase in equity investment by real estate private equity.

6. What taxes apply to private real estate funds organised as limited partnerships?

At the level of the limited partnership fund, “apportion first, then tax” applies with no enterprise income tax levied.

Natural person general partners pay individual income tax at an applicable rate of 20% on investment returns or returns on equity transfers, and a five-tier progressive tax rate of 5 to 35% generally applicable to operating returns. Legal person general partners pay enterprise income tax, with their investment returns exempted, and other income subject to the tax rate applicable to them, which is usually 25%.

As for limited partners, natural person limited partners pay individual income tax at a rate of 20% on investment returns or returns on equity transfers. Legal person limited partners are exempt from enterprise income tax on investment returns and pay tax at the rate applicable to them - usually 25% - on other income.

With respect to fund management companies, business tax and surcharges are payable on their business revenue, and enterprise income tax on their operating income.

7. What are the features of the financing channels available to real estate enterprises in China?

From what we have seen, traditional bank loans remain the main channel of financing for real estate enterprises. In comparison, trust plan loans and asset management plan loans of securities brokerage and fund subsidiaries are becoming prudent. Bond financing, private equity financing and cooperative development are increasing. Policies have been loosened for domestic and backdoor listings of real estate enterprises, but the difficulties remain relatively large and the number of red chip listings is decreasing. Subject to policy, tax and other factors, the generalisation of REIT and quasi-REIT products remains impossible for the time being. It should be noted that the partnership system, i.e. tag-along investment system, has been adopted by a significant number of real estate enterprises. Crowdfunding has been warmly welcomed, and although it has not yet attained significant size, its potential is enormous.

8. What is your take on the most recent developments and timetable for REITs?

In June 2015 the Penghua Qianhai Vanke REITs Closed-end Hybrid Securities Investment Fund was formally offered. The highlights of this product are its being offered publicly and its relatively high liquidity, but there remains a relatively large gap as compared to standard foreign REIT products in terms of underlying assets, investment term, etc. Notwithstanding the great market enthusiasm, there has not been any substantive progress on policy governing REITs, with no new policies issued and currently no authoritative timetable for the release of specific REIT rules. However, considering the market demand and developments in the system and business practice, there is a significant possibility of specific rules on REITs being issued within one to two years.

9. What is the significance of the national property registration system implemented this year?

The establishment of a unified immovable property registration system can give rise to better implementation of the PRC Property Law, ensure the safety of immovable property transactions and effectively protect the lawful interests of immovable property rights holders. Additionally, it is conducive to enhancing scrutiny at the general public level and preventing and punishing corruption, and could propel the launch of a real property tax.

10. The 2015 Foreign Investment Catalogue has significantly opened up real estate to foreign investors. Where do the opportunities lie in this sector?

The Foreign Investment Industrial Guidance Catalogue (Amended in 2015) removes the real estate industry from the restricted category entirely. This change greatly lowers the investment threshold for foreign investors in the real estate industry. However, foreign investment in real estate still requires compliance with the restrictions in relevant regulations that restrict foreign investment in the real estate industry, such as the commercial presence principle and project company principle.


Author biographies

Huijun Ma
Partner

Huijun Ma is a partner in the Beijing office of Zhong Lun Law Firm. He has been specialising in the provision of legal services related to real estate investment and financing and asset operations for the past 15 years. He has extensive experience in real estate transactions, real estate financing, asset operations and foreign investment in real estate.
In the area of real estate transactions, Huijun's experience includes acquisition of real estate companies and projects, mergers, large-tract real estate deals, grants and transfers of land use rights, etc. In the area of real estate financing, he has extensive experience in REITs, immovable property ABS, immovable property ABN, real estate structured financing, etc. In terms of real estate asset operations, Huijun provides legal services related to the operation of commercial, office, logistics, industrial, tourism, hotel, cinema and other assets.

Jiong Zhang
Partner

Jiong Zhang is a partner in Zhong Lun's real estate and infrastructure practice group. Jiong mainly provides legal services in the project construction sector and has extensive experience in construction project tendering, project management, project settlement risk control and dispute resolution. Jiong has been granted the title of Chartered Builder and awarded as an MCIOB by the Chartered Institute of Building, has been named a notable practitioner in the construction sector by Chambers for many years in succession. He was awarded the Asia-Pacific Outstanding Younger Partner in 2013, was selected among “China's 60 Most-Recommended Construction Lawyers” by the American magazine Engineering News Record and the Chinese magazine Construction Times in 2013, and was honoured as one of “China's Top Rising Lawyers” by ALB in 2014.

中伦律师事务所的马会军律师和张炯律师阐述外商所需认识有关中国房地产及建筑市场的一切，涵盖投资结构及融资方法，以至税务及合同签署都娓娓道来

1. 过去一年，中国房地产方面出台了什么重要的外商投资政策？这些政策如何影响跨境交易？

过去一年内，中国相继出台了一系列旨在放宽房地产行业外商投资管制的法规与政策，中国境内房地产投资的跨境交易项目面临的宏观政策环境进一步宽松。具体而言，商务部简化了外商投资房地产企业备案程序，将备案权下放至省级商务部门；依据国务院于2014年10月发布的《关于发布政府核准的投资项目目录（2014年本）的通知》，《政府核准的投资项目目录》之外的城建项目，由地方政府自行确定实行核准或者备案。据此各省、市、自治区分别出台了相关目录，有的将房地产（包括外商投资房地产）列入核准项目目录中，多数未将房地产列入核准目录，这意味着外商投资房地产项目仅进行备案即可。最为引人关注的调整是国家发改委、商务部发布的《外商投资产业指导目录（2015年修订）》完全删除了从1995年就出现在限制类行业中的房地产相关产业（具体见下文）。

2. 过去12个月内有什么重大的房地产交易？

过去一年左右的时间里，中国境内重大房地产交易发生频繁，突出的特点是房地产企业的联合与合作。如万达集团与万科集团宣布建立战略合作关系，发挥各自优势，实现互利共赢；融创收购绿城24.313%的股权（后融创收购绿城股权的交易终止）；协信集团和迪控股宣布成立迪协信科技城投资（集团）有限公司，专注于科技城投资开发与园区营运。随着房地产行业市场竞争日益激烈，为解决资金炼危机，增强竞争力，资产重组、合并收购很可能在未来频频发生。

3. 法规政策对冷却了的房地产市场起了什么作用?

2015年，国家对于房地产市场的调控政策比较稳健、整体偏向宽松，在供应端和需求端两端分别调整，以实现消化存量房，解决供过于求的问题。在供应端，国家执行“有供有限”的原则，住房供应明显偏多的地区应当减少或暂停供应。在需求端，国家通过降低购房首付款支付比例、实行差别化信贷政策、降低交易税负等手段刺激需求。除京沪广深四个一线城市及极少数其他城市外，各地以各种形式取消了限购政策。在资金端，国家逐步放开了房地产企业资本市场融资的限制。

4. 参与中国建筑项目的外商最关注的是什么? 它们如何应对这些对它们有重大影响的事情?

根据中国现行法律规定，除少数特殊项目外，大部分工程项目必须依法进行招标。虽然部分地方政府对于外资项目有放松要求的趋势，但大部分地方政府仍然严格执行招投标的管理规定。通常，外国投资者更倾向于使用自己较为熟悉的工程合同版本（如FIDIC）。对于必须招标项目，备案部门一般要求使用政府标准文本，并且必须办理合同备案手续。在合同备案过程中，政府主管部门会对合同内容进行实质审查。这在某种程度上有可能会影响甚至改变投资者和承包商之间已经确定的合同风险分配原则。部分投资者会选择在备案合同之外另行签署其他协议的方式来规避前述审查。但是另行签署的协议效力受到质疑，从而又使投资者面临新的风险。

5. 近来房地产私募基金最喜欢的投资结构是哪一类型? 每种方式各有什么特点?

房地产私募基金的投资结构并没有明显变化，多数仍会考虑优先、劣后及中间级的结构化，并且要求融资方的担保和回购。名股实债的融资方式也还是普遍。房地产PE做股权投资的有所增加。

6. 有限合伙制形式的房地产私募基金适用哪些税种？

有限合伙基金层面“先分后税”，不征企业所得税。

普通合伙人自然人缴纳个人所得税，投资收益或股权转让收益适用税率为20%，经营收益通常适用5%–35%的五级超额累进税率。普通合伙人为法人的，缴纳企业所得税，投资收益免征，其他收入按其自身适用税率缴纳，通常税率为25%。

有限合伙人方面，自然人有限合伙人缴纳个人所得税，投资收益或股权转让收益适用税率为20%。法人投资收益免征企业所得税，其他收入按其自身适用税率缴纳，通常税率为25%。

对于基金管理公司，其营业收入需缴纳营业税及其附加。经营所得缴纳企业所得税。

7. 中国房地产企业一般的融资渠道有什么特色？

据我们观察，传统的银行贷款等仍是房地产企业融资的主要渠道。信托计划、券商子公司和基金子公司资产管理计划贷款相对趋于谨慎。而债券融资、私募股权融资及合作开发正在增多。房地产企业境内上市或借壳政策有所松动，但难度仍然较大，红筹上市越来越少。REITs或者准REITs产品受制于政策、税务等因素，暂时无法普及。值得注意的是，合伙人制度即跟投制度被相当数量房地产企业采用。众筹形式融资受到热捧，虽尚未形成规模，但潜力巨大。

8. 阁下对中国房地产信托投资基金 (REIT) 落地的最新进展与时间表有什么预测？

2015年6月，鹏华前海万科REITs封闭式混合型证券投资基金正式发行。该产品的亮点在于公募发行和具备较高的流动性，但在基础资产、投资期限等方面与外国标准REITs产品仍有较大差距。尽管市场热情很高，但REITs在政策上并没有实质性进展，没有新的政策颁布，REITs具体规则的落地目前并无权威的时间表，但综合考虑到市场需求、制度建设与业务实践的发展，REITs具体规则于一两年内出台仍然存在一定可能。

9. 今年实施的全国房地产注册制度有什么重要影响?

建立不动产统一登记制度可以更好的落实物权法规定，保障不动产交易安全，有效保护不动产权利人的合法财产权。同时也有利于加强社会管理，预防和惩治腐败，并可能推助房产税的出台。

10. 2015年版的《外商投资产业指导目录》对外资开启了房地产市场的大门。这领域带来了什么机遇?

《外商投资产业指导目录（2015年修订）》将原房地产业的限制类项目整体删除。该变化使得外资对房地产行业的投资准入门槛大幅降低，但是，目前外商投资房地产仍然需要遵守限制外商投资房地产行业相关规定的限制，如商业存在原则、项目公司原则等。


作者简历

马会军
合伙人

马会军律师为北京市中伦律师事务所的合伙人，15年来专注于房地产投融资及资产运营的法律服务，在房地产交易、房地产金融、资产运营、外商投资房地产方面有丰富的经验。
在房地产交易领域，马律师的经验包括房地产公司收购、房地产项目收购、合并、大宗房地产买卖、土地使用权出让转让等。在房地产金融领域，马律师对包括REITS、不动产ABS、不动产ABN、房地产结构化融资等有丰富经验。在房地产资产运营方面，马律师为商业、办公、物流、工业、旅游、酒店、影院等各类资产运营提供法律服务。

张炯
合伙人

张炯律师是中伦房地产和基础设施部合伙人，主要法律服务为工程建设领域，在建设工程招投标、工程管理、工程结算风险控制和纠纷解决等方面经验丰富。张炯律师拥有英国皇家特许建造学会授予的特许建造师称号，并获得该学会正式会员资格，连续多年被Chambers评为建设工程领域卓越律师，2013年亚太地区杰出年轻合伙人，2013年入选美国《工程新闻纪录》（ENR）和中国《建筑时报》2013ENR/建筑时报“最值得推荐的60位专业律师”，2014年入选ALB中国律师新星。