Real Estate Entrepreneurship and Social Responsibility

1. 麻省理工学院STL地产创业实验室

2. Real Estate Entrepreneurship and Social Responsibility
Yu-Hung Hong
Founding Director
MISTI-STL China Summer Camp Program
Information Session 3

3. Outline
• Innovation and Sustainability
• China’s Development Model
• Reason Behind the Model
• Opportunities and Challenges

4. Innovation & Sustainability
Social Responsibility

5. China’s Development Model
Local
govern-
ments
Public or
private
developers
Central
government
Attempt to achieve the
policy goals
mandates

6. The New Normal

7. The New Normal

11. Tianducheng, Hangzhou, Zhejiang
source: http://desertedplaces.blogspot.com/2013/08/a-parisian-
ghost-town-in-middle-of-china.htmlanoramio)

12. Housing Oversupply

13. Housing Oversupply

14. Central
18%
Local
82%
Investment in Public Utilities and
Infrastructure: 2011
Total: 5,906.7 Billions RMB

15. Budget
12%
Bank loans
27%
Others
61%
Funding sources for Public Utilities and Infrastructure
2011

16. Government Debt Audit
• 31 provinces
• 291 cities
• 2,778 counties
• 33,091 townships
• 2,454,635 loans

17. Government Debt Audit
• Debts need to be repaid by National and Subnational
governments.
• Debts that governments guarantee repayments if they go
into default.
• Debts that governments have to rescue (repayment
obligations?) if these loans go into default.

18. Government Debts in China
(In trillion Yuen)
Year Level of Government
Central 9.4 50% 2.8 53% 2.2 36% 14.4 48%
2012 Subnational 9.6 50% 2.5 47% 3.8 64% 15.9 52%
Total 19.1 100% 5.3 100% 5.9 100% 30.3 100%
Central 9.8 47% 0.3 9% 2.3 35% 12.4 41%
2013 Sunational 10.9 53% 2.7 91% 4.3 65% 17.9 59%
Total 20.7 100% 2.9 100% 6.7 100% 30.3 100%
Sources: China's National Audit office (2013)
Need to repay
Guarantee
obligations
Rescue
obligations
Chinese Government Debts: 2012 and 2013
Total

19. Subnational Government Debts in China
(In trillion Yuen)
Level of Subnational
Government
Province 1.8 17% 1.6 59% 1.9 43% 5.2 29%
City 4.8 46% 0.7 28% 1.7 39% 7.3 41%
County 4.0 37% 0.3 13% 0.7 17% 5.0 29%
Township 0.03 0% 0.01 0.4% 0.05 1% 0.1 1%
Total 10.6 100% 2.7 100% 4.3 100% 17.6 100%
Sources: China's National Audit office (2013)
Subnational Government Debts as of June 2013
Need to repay
Guarantee
obligations
Rescue
obligations
Total

20. Who borrowed?
(In trillion Yuen)
Type of Entity
Joint Venture 4.1 37% 0.9 33% 2.0 46% 7.0 39%
Gov't Agencies 3.1 28% 1.0 36% 0.0 0% 4.1 23%
Subsidized Companies 1.8 16% 0.1 4% 0.5 12% 2.4 13%
State-owned 1.2 11% 0.6 22% 1.4 32% 3.1 18%
Self-financed 0.3 3% 0.04 1% 0.2 5% 0.6 3%
Public Utilities 0.3 3% 0.01 1% 0.2 4% 0.5 3%
Others 0.1 1% 0.08 3% 0.0 0% 0.2 1%
Total 10.9 100% 2.7 100% 4.3 100% 17.9 100%
Sources: China's National Audit office (2013)
Entities involved in Sbnational Government Debts as of June 2013
Need to repay
Guarantee
obligations
Rescue
obligations
Total

21. For What Purposes?
(In trillion Yuen)
Purposes
City development 3.8 37% 0.5 21% 1.5 36% 5.8 35%
Land banking 1.7 17% 0.1 4% 0.1 2% 1.9 11%
Transportation 1.4 14% 1.3 51% 1.4 34% 4.1 24%
Social housing 0.7 7% 0.1 6% 0.3 7% 1.1 7%
Education 0.5 5% 0.08 3% 0.4 10% 1.0 6%
Irrigation 0.4 4% 0.06 2% 0.1 2% 0.5 3%
Environmental 0.3 3% 0.04 2% 0.1 2% 0.5 3%
Industrial & Energy 0.1 1% 0.08 3% 0.0 1% 0.2 1%
Others 1.2 12% 0.21 8% 0.3 6% 1.7 10%
Total 10.1 100% 2.6 100% 4.1 100% 16.8 100%
Sources: China's National Audit office (2013)
Purposes of Debt Financing
Need to repay
Guarantee
obligations
Rescue
obligations
Total

22. Risks
• Local governments depend on land
leasing revenue to repay their debts. (By
the end of 2012, 11 province, 216 cities,
and 1,396 counties have used future
land revenues as collateral to borrow 3.5
trillion RMB, about 37% of all
subnational debts.)

23. Risks

24. Opportunities
• Re-use under-utilized land and
buildings for:
o innovative startups;
o co-working spaces; and
o co-living spaces.
• new branding strategy—
environment conservation and
cultural preservation.

25. Challenges
• Key stakeholders refuse to work
together.
• Real estate developers may not pay
enough attention to the types of
services demanded by customers.
• New education programs on real
estate management may be
unavailable.

26. Local public
finances
Proposed Land Tenure Reform Strategy
1 2
Ecology and
farmland
preservation and
food security
3
Rural land
tenure
4
Integration of
urban and rural
land markets
Land value
sharing
Rural
leasehold
system
Public land
acquisition
system
Land use
planning
Agricultural
modernization
New town
development
Transport
ation
Incomplete
property rights
houses
Clearly
defined and
secure
leasehold
rights
Gradual legal reforms and policies to stabilize real estate prices
Banking and
real estate
investment
reforms
Land quota
trading system
Alternative
local revenue
sources