December 17, 2013 / 2:16 AM / 5 years ago

Fitch: Franshion's Changsha Projects Set Example for Urbanisation Funding

(The following statement was released by the rating agency) HONG KONG, December 16 (Fitch) Fitch Ratings says Franshion Properties China Limited's Changsha projects, in which it financed the primary land development, can serve as a model for local governments in China seeking alternatives to fund their urbanisation plans. Currently, local governments spend a significant amount of money on primary land development, which mainly includes infrastructure development and population relocation, before selling the land to property developers. China's central government at an urbanisation conference held on 12 and 13 December 2013 stressed the importance of enhancing local governments' abilities to finance urbanisation by improving tax systems, management of local bond issues, and active participation of policy financial institutions. Fitch believes that these measures will require a long gestation period, and in the interim, a viable alternative is to get developers to fund primary development. Franshion's projects in Changsha, the capital of central Hunan province, starting with the Meixi Lake project, show how this funding model can be put to practice. In these projects, Franshion built all the basic infrastructure and provided capital for local government to relocate the original residents of the land. In return, the Changsha government paid Franshion a big chunk of the land premium that it received when the land was sold at auction. The arrangement has achieved initial success, with the land fetching over CNY3,000 per square metre at auction, compared with the total cost of around CNY1,500 per sqm for construction and relocation. However, only financially strong developers will be able to undertake such projects because it requires significant upfront funding for primary land development before any proceeds begin to come in. In addition, local governments will be very selective in their choice of partners because operational reliability is critical in these arrangements. Contacts: Andy Chang Associate Director +852 2263 9914 28th Floor, Two Lippo Centre 89 Queensway, Hong Kong Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Related Research "2014 Outlook: China Homebuilding", dated 9 December 2013 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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