Tax Incentives and Tax Planning Techniques for Real Estate Enterprises

Author: Wang Jing
Publisher:
Publish Date: 2006-11-01
Features:
1. The Development History and Current Status of the Real Estate Industry
Since the reform and opening-up in the 1980s, China's real estate industry has experienced rapid development, increasingly moving towards a mature industrial economy. The real estate sector has also made significant progress, but issues such as irrational property rights and incomplete regulatory frameworks have posed major constraints. The path ahead for China's real estate industry is still long.
Since the founding of the People's Republic of China, the development of real estate can be divided into three stages.
1949–1956: Before the liberation, some major cities in China, such as Shanghai, Tianjin, Guangzhou, and Qingdao, had a certain degree of real estate development. However, most of it was controlled by foreign capitalists. In 1936, it was estimated that foreign banks held a total of 132.65 million yuan in real estate capital in China; eight British real estate companies had overdrafts of 54.5% of their capital, and three American real estate companies had overdrafts of 89.7% of their capital. After the liberation, during the period of national economic recovery, after driving out foreign capital and confiscating bureaucratic capital, the private real estate operations of national capitalists were retained, and the market mechanism still existed. However, as the national economy gradually shifted toward a planned economy, business operations were subject to certain restrictions and basically maintained their original scale. Starting in 1953, China implemented the Five-Year Plan, and the entire national economy gradually moved into a planned economy framework. Real estate transaction activities gradually declined. By 1956, with the completion of the transformation of capitalist industry and commerce, real estate operations for profit were completely eliminated. Productive real estate was fully incorporated into planned projects and produced and distributed according to plans. Non-productive real estate, such as residential housing, was also fully incorporated into planned projects for production and distribution. Although the construction industry existed, it was launched, transferred, and adjusted according to state-planned projects, not serving the real estate business.
1957–1980: The national economy of China was fully incorporated into a planned economy framework. With the completion of the transformation of capitalist industry and commerce in 1956, real estate operations were completely eliminated. Real estate development was entirely state-invested. In terms of real estate production, there was an emphasis on production over consumption, and an emphasis on productive real estate development over non-productive real estate development. As a result, urban infrastructure and housing construction lagged behind the needs of urban development and population growth. During this period, housing construction was arranged by the state budget and, after production, was distributed to employees as a benefit for their housing. In the early days of liberation, to address the housing needs of the homeless and improve workers' living conditions, many cities built new workers' villages, significantly improving the living conditions of urban residents. However, due to the single investment and allocation mechanisms for real estate, many debts accumulated. In 1980, the per capita living space in urban areas across the country was only 3.6 square meters, and the living environment and conditions of urban residents urgently needed improvement. This was a major driving force for the rapid development of real estate, especially housing, after the reform and opening-up.
1981–1999: This was a period of recovery and rapid development for China's real estate industry. The Third Plenary Session of the Eleventh Central Committee of the Communist Party of China proposed the policy of reform and opening-up, gradually changing the single planned economy model and shifting gradually from a planned economy to a planned commodity economy.