1. Financial Strategies For Property Projects

2. Development Plan  Residential units – area, no. of units, flat size, target buyers  Car parks – no. of car parks, for sell to buyers of residential units or retain for rental  Retails – area, with wet market and kindergarten, usually retain for rental  Development period, developed by phases, expected completion date

3. Development Plan (cont’d)  Any environment protection requirements  Any government requirements – bus terminal and community centre  In line with company’s business strategies  Joint venture with other developers  Board approval

4. Development costs  Land cost and land premium  Site formation and foundation  Superstructure and substructure  Professional fess - architect, engineers, surveyors and project manager  Marketing costs – on site show flat, sales teams, commission to sales agents  Sundries (handover expenses)  Interest expenses

5. Project financing  Debt financing  - Syndicated bank loan  - Interest rate (HIBOR + margin)  - Drawdown schedule  - Upfront fee to bankers and other legal costs  Equity financing  - Funds from internal generated funds  - Interest costs  Target capital structure

6. Project appraisal  Forecast profit statement  - Sales proceeds less total development costs  - Estimated total development profit before tax and after tax for future years  - Current tax rate in HK: 16.5%  Forecast yearly cash flow  - Sales proceeds (depend on sales program)  - Immediate mortgage and stage payment  - Yearly payment of development costs  - include opportunity costs & exclude sunk costs

7. Project appraisal (cont’d)  Development project program  Residential breakeven sale price  Profit as percentage of sales  Profit as percentage of total development expenditure  Internal rate of return (IRR)  Effect on company’s gearing & liquidity ratios  Sensitivity analysis (profit effect on 10% decrease in sale price or 5% increase in interest rate

8. Accounting treatment  Properties developed for sale:  - recorded as property under development and classified under current assets  - interest capitalized up to occupation permit date  - profit recognition (HK-Int 3 – Pre-completion contracts for sale of development projects)  Properties developed for rental (HKAS40):  - recorded as investment property  - subject to year-end valuation

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