Episode 5 Sustainable City Exchange|Where does the money come from? – Talking about financial resources for sustainable urban regeneration

Speakers in this episode: Manager Liu Diyong of the Securities OTC Trading Center, Director Wu Hongqing of Yushan Bank, Chief Legal Officer Chen Jiancheng of Shin Kong Bank, and Chief Operating Officer Xu Qichang of Zicheng United Accounting Firm (ordered according to 
the order of appearance 
in the video )

Urban regeneration is to provide Taipei people with a better quality environment. I hope my family and I can live a happy life in Taipei because of this.

     The value of land comes from the value created by the development of land-related rights. The rarity and sustainability of land come from the functional development endowed by urban planning. If the land holdings continue to be fragmented, subsequent changes will occur, and it will be even more unsustainable.

      Securitization allows small investors to hold one unit and make it easily tradable. Real estate securitization allows small investors to participate in the value created by development.

      Land holdings and securities holdings actually hold the same certificate for small investors.


Seven uses of social responsibility bonds of financial institutions

There are five tranches of social responsibility bonds worth 12.3 billion. There are three tiers: China Trust Bank, SinoPac Bank and KGI Bank. On May 24, Far East New Century Company raised social responsibility bonds. In addition, foreign issuers came to Taiwan to raise funds for credit card companies and issued US$300 million in social responsibility bonds. The main application scope of the 1 billion raised by China Trust is community development cases, land rights demolition, and rezoning compensation for residents. The use of funds of Wing Fung Bank can be roughly divided into three parts.

      The first is to cooperate with the epidemic policy and provide financing for small and medium-sized enterprises so that they can continue to operate and create employment opportunities. The second is to apply it to affordable housing, in line with the government’s housing reconstruction policy for dilapidated old buildings or urban renewal, and lend the money to companies or landowners who rebuild dilapidated old buildings. The third one is used in the seven major items of “social and economic development” or rights protection projects.

KGI Bank’s funds can also be divided into three parts. The first part is to create jobs and provide financing to small and medium-sized enterprises like Sino-Fung Bank. The second is affordable housing for urban renewal and loans for dilapidated old buildings. The last part of the funds is small-amount financing provided to disadvantaged groups such as low-income households and taxi drivers. This is the actual use of funds for the five social responsibility bonds we currently issue domestically.

Assist ESG financing through bank issuance

However, Wu Hongqing, Director of the Customer Group Operations Office of Yushan Bank’s Corporate Financial Business Office, believes that “the issuance of bonds has qualification issues after all, so it will be more biased towards listed OTC companies with higher ratings and credit ratings.”

     However, the development of society’s hope Trends also include urban renewal or elderly care issues. For the reconstruction of small areas within two to three hundred square meters of dilapidated old buildings, it is less likely to use financing tools such as bond issuance, but more likely to use banks’ land financing or trust structures to complete the construction of dilapidated old houses. However, urban renewal is more complicated. This kind of large listed company belongs to the construction industry, and it can also raise funds through social bonds to meet the needs of project financing.

     Whether it is Taiwanese businessmen returning to Taiwan, small and medium-sized enterprises accelerating investment, or the entire production base remaining in Taiwan being readjusted, there are many green factories and green buildings emerging, and this ESG concept has been integrated into the plot of the construction project.

Combined with “urban renewal”, “green building” can achieve sustainable development

Chen Jiancheng, the legal director of Shin Kong Bank, explained to us: Judging from the “sustainable development bonds” regulations currently adopted by the OTC purchase center, the connecting point between urban renewal and sustainable development bonds is probably green buildings. In the future, urban renewal buildings and green and environmentally friendly buildings will be linked together and can be combined with sustainable development bonds. Only if all urban renewal meets the standards of green buildings will it be consistent with the concept of sustainability.


REAT vs REIT

my country’s real estate securitization has evolved from financial asset securities beneficiary certificates to now adding income certificates for real estate securitization, which has also given rise to “real estate investment trust beneficiary certificates (REIT)” and “real estate asset trust beneficiary certificates (REAT)”.

REAT is a management trust, which refers to an asset management trust for general assets and real estate, which is equivalent to the nature of a bond. REIT is an investment trust, which is equivalent to the nature of a fund. The nature of a bond is that the homeowner who owns real estate borrows money and transfers the real estate to an intermediary investment trust company, which is managed by the trust management company.

     But in fact, many builders believe that urban renewal can be done with their own funds plus direct financing from banks, which means they will not choose the REAT method. This may be because the benefits of Taiwan’s REAT system are not enough to attract them to enter the market. If REAT can be successfully opened, Shin Kong Bank Chen Jiancheng Legal Affairs believes that the pace of urban renewal will be faster.

      Chen Jiancheng, Chief Legal Officer of Shin Kong Bank, believes that from the perspective of urban renewal, the more feasible method is the REIT model. To put it simply, urban renewal relies on the operation model of a REIT, which is similar to that of a company, such as cutting this house into shares and selling them to other people. The funds collected from the public can then be used to buy houses or develop them. Can.

     REIT is very popular in other countries, especially the United States, and its structure does not have the same restrictions as in Taiwan. REIT itself is characterized by small-amount fund-raising by natural persons, and Taiwan’s regulations are restricted because Taiwanese consumers are prone to be held responsible by the competent authorities due to investment disputes. As a result, the current management system in Taiwan is full of restrictions, so it is difficult for REITs to become popular in Taiwan.


Provide policy tax incentives to both “bond investors and issuers”


      Chen Jiancheng, the legal director of Shin Kong Bank, believes that the government’s level of encouragement for perpetual bonds and real estate investment securities products is not high, and the encouragement from the tax system is not obvious. If the tax system provides more incentives for everyone to invest, including those who issue perpetual bonds or green bonds, they can raise funds, and then those who are willing to implement can also receive investment from the issuer, making the city more sustainable. Development, this is a good cycle.

Reduce the separate taxation of real estate securities back to 6%


      Xu Qichang, chief operating officer of Zicheng United Accounting Firm, said: Now we have no way to say that the income tax of REITs is more preferential than that of other financial products, because since the 1990s, it has been separated from the income of other financial products like the income of other financial products. Taxed 10%. For an investor, his income taxation method will not be different depending on whether it is a REAT or a REIT; for a person who provides real estate, if he has formed the concept of real estate disposal, his taxation will be the same.

     If we really want to make Taiwan a sustainable city through REAT and REIT, we can actually go back to the early stage of real estate securitization and reduce the separate tax back to 6%.

summary


     Although real estate securitization currently has a legal source for development-type real estate securitization, whether it is the conservative mentality of the investing public or the regulatory authorities, in the future, for the sake of urban regeneration, it is bound to move in the direction of development-type real estate securitization. Paired with the financing of perpetual bonds, green and sustainable development can be designed together in different stages and developed with appropriate financing methods.

     This episode hopes to cooperate with the urban regeneration bill initiative in episode 6, conduct discussions, promote fund raising, public participation in investment, create a circulating urban regeneration financial market, and move towards the vision of sustainable urban regeneration.

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