Annual Report 2015
RISK FACTORS
231
D. MAJOR RISK FACTOR ON SUBSIDIARIES
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New World China Land Limited (“NWCL”)
(continued)
7. The fiscal and other measures adopted by the PRC Government from time to time may limit NWCL’s flexibility
and ability to use bank loans to finance its property developments and therefore may require NWCL to
maintain a relatively high level of internally-sourced cash. In recent years, the PRC Government has tightened
the requirements in relations to grant of state-owned land used rights by way of tender, auction and listing-
for sale and raised the minimum down payment of land premium several times up to 70% of the benchmark
price of the locality where the parcel of land is granted, and the bidding deposit at not less than 20% of the
minimum land premium. Additionally, a land grant contract is required to be entered into within 10 working
days after a land grant deal is closed, and the down payment of 50% of the land premium is to be paid within
one month of the signing of the land grant contract, with the remaining to be paid in full within one year
of the date of the land grant contract in accordance with provisions of such land grant contract, subject to
limited exceptions. Such change of policy may constrain NWCL’s cash otherwise available for additional land
acquisitions and construction works.
8. Under PRC tax laws and regulations, NWCL’s properties developed for sale are subject to LAT, which is
collectible by the local tax authorities. All income from the sale or transfer of state-owned land use rights,
buildings and their ancillary facilities in the PRC is subject to LAT at progressive rates ranging from 30% to
60% of the appreciation value as defined by the relevant tax laws, with certain exemptions available for the
sale of ordinary residential properties if the appreciation does not exceed 20% of the total deductible items
as defined in the relevant tax laws. Sales of commercial properties are not eligible for such exemption. A
minimum LAT prepayment rate ranging from 1% to 2% of sale value required to be paid by developer upon
sale and before the development project is completed and eligible for tax audit for final settlement of LAT.
9. Local provincial tax authorities can formulate their own implementation rules according to the Notice on the
Administration of the Settlement of Land Appreciation Tax of Property Development Enterprises and local
situations and there are uncertainties as to how they will enforce this notice. In the event that relevant tax
authorities change their requirements as to the amount or timing of payment of provisional LAT, NWCL’s cash
flow may be materially and adversely affected.
10. A significant portion of NWCL’s operation is in the PRC and majority of NWCL’s income and expenditures
were transacted in Renminbi. Renminbi is not freely convertible. The PRC Government regulates the
conversion between Renminbi and foreign currency, and there is significant restriction on the remittance of
Renminbi into and outside the PRC. The value of Renminbi is subject to changes in PRC Government policies
and to international economic and political developments. Therefore there is no assurance that the exchange
rate of Renminbi will remain stable against foreign currencies in the market and fluctuations in exchange rates
may adversely affect the value, translated into Hong Kong dollars, of NWCL’s net assets, earnings and any
declared dividends.
11. In recent years, the PRC Government has promulgated administrative measures to gradually liberalise the
control over cross-border remittance of Renminbi where payment of current account items, including profit
distributions, interest payments and expenditure from trade may be made in foreign currencies without prior
approval, but subject to certain procedural requirements. However strict foreign exchange controls continue
to implement in respect of capital account transactions including repayment of loan principal and return on
direct capital investments and investments in negotiable securities. Such exchange controls may impact the
distribution plans of NWCL’s PRC subsidiaries to the Company.
