Nam Tai Property (NTPIF) Risk Analysis

The PRC government regulates the real estate industry. This section summarizes the principal PRC regulations relating to our business. We operate our business in China under a legal regime consisting of the National People's Congress, State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and  agencies under its authority, including the Ministry of Housing and Urban-Rural Development, or the MOHURD, the Ministry of Land and Resources, or the MLR, the Ministry of Commerce, or the MOFCOM, the National Development and Reform Commission, or the NDRC, the State Administration for Industry and Commerce, or the SAIC, the State Administration of Taxation, or the SAT, and the State Administration of Foreign Exchange, or the SAFE, and their respective authorized local counterparts. Shenzhen City Zoning Measures Urban Planning Criteria and Standards of Shenzhen City promulgated by the People's Government of Shenzhen City on January 1, 2014, among other things, classifies zoning of land. "M" stands for the industrial land that is mainly used for the production, manufacture and fine machining of products. Other auxiliary use includes research, design, testing, management and other activities. Within the M zone, "M-1" refers to common industrial land that is mainly zoned for factory buildings for the production and manufacturing. Other uses for this type of land include warehouse, small business, staff dormitory, attachable public facilities, attachable transportation facilities and other auxiliary facilities. "M-0" refers to a new type of industrial zone that combines research, originality, design, test pilot production, pollution-free production, other innovative industry and relevant supporting services. Land zoned as such is mainly used for the factory buildings (pollution-free production) and research and development building and can also be used for the associated commercial and staff building, attachable public facilities, attachable transportation facilities and other auxiliary facilities. Compared to M-1, M-0 has a lower minimum usable area for partial transfer of property rights, which for M-1 according to current regulations is 500 square meters, and for M-0 is 180 square meters. If the draft for public comments on "the Measures on Administration of Industrial Block and Line of Shenzhen City" issued on December 22, 2017 is passed and formally promulgated, the minimum usable area for subdivision and partial transfer of property rights will be raised to 1,000 square meters for M-1 and 500 square meters for M-0. We believe a smaller subdivision and partial transfer area will be more beneficial to us for the sale of constructed units, as it would give us greater flexibility. Further, buildings in M-0 zone must follow certain legal planning construction index allocation for a percentage of the buildings to be designated as research and development offices, commercial, and apartments, while index for buildings in M-1 zone must be designated as factory buildings, small commercial and auxiliary dormitory. As a result, we believe the planning construction index for M-0 zone offers us greater commercial advantages. Finally, the permitted floor area ratio for M-0 is 6:1, compared with 4:1 for M-1. Higher floor area ratio means permission for larger building areas and potentially higher value for the projects as constructed. As stipulated in the Measures on Administration of Industrial Occupancy Zoning Transformation of the City Renewal Project in the Baoan district, Shenzhen, the site of Phase I of Nam Tai Inno City falls within the city renewal project of the Baoan district industrial red line zone and can generally only be rezoned into the common industrial zone M-1, unless otherwise approved by relevant government department to change into the new type industrial zone, M-0. Currently, the site of our Nam Tai Inno Park is zoned as M-1 with 50 years of Land Use Rights starting from 2007. Phase I of Nam Tai Inno City, the eastern section, is zoned as M-0 with 50 years of Land Use Rights starting from 1993, but we plan to re-execute the land use rights contract with the urban planning, land and resource department in the second quarter of 2018, which would restart the 50 years Land Use Rights from the date of re-execution. Phase II of Nam Tai Inno City, the western section, is currently zoned as M-1 with 50 years of Land Use Rights starting from 1999. We plan to apply for the M-0 zoning approval on June 2020, after our existing facilities on the site have aged for 15 years, or earlier if permitted. We plan to re-execute the land use rights contract at the same time, which would also restart the 50 years Land Use Rights from the date of re-execution. Shenzhen City Renewal Measures Our two development projects, Nam Tai Inno Park and Nam Tai Inno City are located within the municipality of Shenzhen city. Our development must be made in compliance with the relevant rules and regulations of Shenzhen City. The Shenzhen City Renewal Measures promulgated by the Shenzhen government on November 12, 2016 restricts city renewal projects as follows: - city renewal refers to activities in certain types of building construction in areas of the city (including old industrial parks, old commercial districts, old residential districts, urban villages and old housing districts) and existing of comprehensive improvement, functional alteration, or demolition and reconstruction ;- demolition and reconstruction of a city renewal project should strictly follow the city renewal unit plan and city annual renewal plan; and - the responsible body of demolition and reconstruction of a city renewal project should sign a land use rights supplementary contract or re-execute a land use rights contract with the Urban Planning, Land and Resource department after obtaining the documents of approval of city renewal project. In such circumstances, the term for land use rights will be recalculated and the responsible body needs to pay the additional premium according to the relevant regulations. Our Nam Tai Inno City project is a demolition and reconstruction city renewal project. Phase I of the Nam Tai Inno City project has received the approval documents for city renewal. We plan to re-execute the land use rights contract with the urban planning, land and resource department in the second quarter of 2018, so that the 50 years term of Land Use Rights will restart from the date of the re-execution. As a part of re-executing the land use rights contract, however, we are required to pay an additional land premium which would bring up the costs basis of our land. The amount of the land premium differs based on the different property usage or transfer method in the future. As we obtained our land at a relatively low cost historically, we may be subject to significant additional land premium when we re-execute the land use right contracts. The Interim Measures on Strengthening and Improving City Renewal Implementation promulgated by Shenzhen government on December 29, 2016 and effective as of January 1, 2017 provide that: - to apply to demolish and reconstruct buildings as a part of a city renewal projects, the age of the building must be no less than 20 years for buildings located in residential districts; and for buildings located in industrial or commercial districts, not less than 15 years; and - to demolish and reconstruct buildings as a part of a city renewal project located in the state-owned industrial land, warehousing land, land for logistics purposes, land for urban infrastructure and public service facilities' updating and rebuilding for industrial purposes or for industry that government encourages to develop, their correction factor for land granting premium based on the public benchmark land price will be: 0.1 for private use; 0.7 for wholly transfer; 1.0 for partial transfer of industrial plants or new industrial occupancy; and 5 for auxiliary facilities. Our Nam Tai Inno City project is a demolition and reconstruction city renewal project in an industrial district, the buildings of which shall be no less than 15 years old before it can be demolished and reconstructed. The buildings located on the site of Phase I of Nam Tai Inno City, the eastern section, were built in 1996, thus they have satisfied the 15 years age requirement. However, for buildings located on the site of the Phase II of Nam Tai Inno City, the western section, they will satisfy the 15 years age requirement on schedule in June 2020. However, we may speed up the process for earlier zoning approval through discussions with the relevant authorities. Furthermore, the floor area ratio of Nam Tai Inno City project has greatly increased from 2.3: 1 for our prior facilities located on the site of Phase I of Nam Tai Inno City to 6:1 for Phase I of Nam Tai Inno City. For Phase II of our Nam Tai Inno City project, it is also expected that the floor area ratio will increase from 1.6:1 from our prior facilities to 6:1 for Phase II of Nam Tai Inno City. This results in a large increase in the floor area ratio in the Nam Tai Inno City project compared to the floor area ratio granted to us previously for our prior facilities. According to the regulations and policy direction, further limitations, including a requirement that certain portion of a renewal project of old industrial districts, especially ones with a large increase in floor area ratio, may also be subject to usage limitations or required to be self-owned and not sold to third parties, which could further limit our ability to sell our units. On December 22, 2017, the Economic, Trade and Information Commission and Urban Planning, Land and Resources Commission of Shenzhen Municipality jointly promulgated Measures on Administration for Industrial Block Line of Shenzhen Municipality (the draft for public comments), which, among other things, provides: - If Industrial land which falls into block line is used for research and development buildings, the proportion reserved for self-ownership should be no less than 60%. - The authority shall strictly control the transformation from M-1 into M-0 within the block line and the whole proportion of such transformation should be no more than 20% within the block line in each district. The transformation should be finally approved by municipal government after district government's collection of suggestions of Urban Planning, Land and Resources Commission and Industry Management Department. - If the transferor transfers industrial land within the first-tier industrial line or partially transfers an industrial building, the transferee must be an industrial enterprise above state designated scale or an enterprise that has been engaged in manufacturing for more than 3 years and has paid all legal tax and the transferee cannot change the usage of buildings. The minimum transfer area of factory building for M-1 or M-0 shall be no less than 1,000 square meters and the minimum transfer area of research and development building for M-0 shall be no less than 500 square meters. - Buildings in the M-0 zone shall be mainly used for construction of the factory buildings (pollution-free production) and research and development buildings. The floor area of factory buildings and research and development buildings shall be no less than 70% of the total floor area. If factory buildings and research and development buildings coexist in a project, the floor area of factory building (including comprehensive buildings combining factory buildings with research and development buildings) shall be no less than 30% of the total floor area. - Factory buildings within both M-1 and M-0 zones shall not be changed to apartments. Research and development buildings and auxiliary facilities shall not adopt apartment-like design. The floor area of one set of offices shall be no more than 50% of the floor area of that floor. The floor area of one set of offices for M-1 shall be no less than 1,000 square meters and 500 square meters for M-0. - The site of Nam Tai Inno City is on an industrial land within the first-tier line of industrial block line where the government strictly controls the proportion of transformation from M-1 into M-0 on this type of land. Phase I of Nam Tai Inno City has obtained the government approval to rezone into M-0, while we plan to apply for M-0 zone on Phase II of Nam Tai Inno City upon the maturity of the building age requirement around June 2020, or earlier through discussions with the relevant authorities. We may confront difficulty in acquiring such an approval from the government owing to certain proportion requirements within the City Renewal Measures, so that not all M-1 zones can be rezoned as M-0. The requirement that a proportion of industrial land must be dedicated as factory buildings or research buildings also restricts us from developing other types of auxiliary facilities. In addition, the restriction that ownership of industrial buildings must be held by enterprises and the minimum size of subdivision may also affect the sale of our units. We cannot assure you that we will obtain the M-0 zoning for Phase II of our Nam Tai Inno City. If we failed to obtain the M-0 zoning approval, we will have to develop Phase II of Nam Tai Inno City under the M-1 zoning approval. Our business, financial condition, and results of operations could be adversely affected as a result. Regulations on Development of a Real Estate Project The following is a summary of the relevant permits and certificates we must obtain to complete our projects, together with the applicable regulations. Please see "ITEM 4. Information on the Company – Our Land Development Projects – Estimated Timetable for the Two Projects" for the estimated timetable of when we expect to obtain each of the following permits and certificates: (a) Land Use Permit, (b) Land Use Rights Certificates (c) Construction Planning Permit, (d) Construction Permit, (e) Construction Acceptance Certificate, and (f) Property Ownership Certificate. Regulations on Land The Law of the PRC on Land Administration, promulgated on June 25, 1986 and amended on August 28, 2004 by the Standing Committee of National People's Congress, distinguishes between the ownership of land and the right to use land. All land in the PRC is either state-owned or collectively-owned, depending on location. Generally, land in urban areas within a city or town is state-owned, and all land in the rural areas of a city or town and all rural land, unless otherwise specified by law, are collectively-owned. Land Use Permit The Law of the PRC on Urban and Rural Planning, promulgated by the National People's Congress on October 28, 2007 and effective as of January 1, 2008, as amended on April 24, 2015, replacing the previous City Planning Law of the PRC, and the Measures for Control and Administration of Grant and Assignment of Right to Use Urban State-owned Land promulgated by the Ministry of Construction in December 1992 and amended in January 2011, provides that a developer who has obtained land use rights by grant must, after obtaining approval for a construction project and signing a land use rights grant contract, apply to the city planning authority for the Land Use Permit before applying for the land use rights certificate as more fully described below. Amendment 3 to the land use right grant dated July 8, 2015 for the site underlying our Nam Tai Inno Park project requires us to complete certain building structures by July 7, 2018. If we failed to do so we may be subject to certain penalty. Land Use Rights Certificate Although all land in the PRC is owned by the governments or by the collectives, private individuals and businesses are permitted to hold, lease and develop land for a specified term without ever owning the land, the duration of which depends on the use purpose of the land. These rights to use land are termed "Land Use Rights". Under the Interim Regulations of the PRC on Grant and Transfer of the Right to Use State-owned Land in Urban Areas, promulgated on and effective as of May 19, 1990 by the State Council, a system of assignment and transfer of the right to use state-owned land is adopted. Enterprises, companies and other organizations who intend to hold, lease and develop the land, or the "Land Users", pay a land premium to the government as consideration for the grant of the Land Use Rights on terms of use prescribed by the government, and a Land User may transfer, lease and mortgage or otherwise commercially exploit the land use rights within such terms of use. The land administration authority enters into a contract with the Land User for grant of the land use rights. The Land User pays the land premium as stipulated in the grant contract. After paying the land premium in full, the Land User registers with the land administration authority and obtains a "Land Use Rights Certificate". The certificate evidences the acquisition of the Land Use Rights. The maximum term with respect to the assigned Land Use Rights are determined respectively in the light of the purposes listed below: (a) 70 years for residential purposes; (b) 50 years for industrial purposes; (c) 50 years for the purposes of education, science, culture, public health and physical education; (d) 40 years for commercial, tourist and recreational purposes; and (e) 50 years for comprehensive utilization or other purposes. The Property Law of the PRC, or the Property Law, promulgated on March 16, 2007 and effective as of October 1, 2007, further clarified Land Use Rights in the PRC with the following rules: - the Land Use Rights for residences will be automatically renewed upon expiry;- the car parks and garages within the building area planned for vehicle parks must be used to meet the needs of the owners who live in the building first;- the construction of buildings must abide by relevant laws and regulations with regard to the construction planning and may not affect the ventilation of or lighting to the neighboring buildings; and - where the Land Use Rights for construction use are transferred, exchanged, used as a capital contribution, donated to others or mortgaged, an application for modification registration must be filed with the registration department. Construction Planning Permit The Measures for Control and Administration of Grant and Assignment of Right to Use Urban State-owned Land promulgated by the Ministry of Construction in December 1992 and amended in January 2011 provides that a developer who has a proposed construction project within the planning area of a city or town must, after obtaining a Land Use Permit, prepare the necessary planning and design work, and submit the detailed planning and design report, together with the Land Use Rights Certificate, to the city planning authority or the town government designated by the provincial government, and apply for the Permit for Construction Works Planning. Construction Planning Permit is different from Land Use Permit. Land Use Permit is a certificate proving that the land use act such as the location, scope and development intensity of the project corresponds with the requirement of urban planning, while Construction Planning Permit is a certificate proving that the design of construction engineering satisfy the requirement of urban planning. The Law of the People's Republic of China on Urban and Rural Planning also provides regulations with respect to the formulation, implementation, modification, control, supervision and related legal liability of measures aimed at curbing problems that may arise as a result of conflicts between city and rural construction developments. The scope of the measures includes the planning, layout and construction of cities, towns with administrative status, market towns and villages. In order to effectively prevent construction that is in breach of rules and regulations, the Urban and Rural Planning Law stipulates that where any construction project is commenced without obtaining a Construction Planning Permit, or where a Construction Planning Permit has been obtained but construction has proceeded not in accordance with that permit, the Urban and Rural Planning Department at the county level or above may issue an order to cease construction. In the case that the construction can be remedied to conform to the relevant planning rules, an order can be made to rectify the construction in a prescribed period of time and a fine totaling between 5% to 10% of the total construction cost may be imposed. Where the construction cannot conform to relevant planning rules, an order for its demolition will be issued or, where demolition is not possible, the property and/or illegal income derived from the property will be confiscated and a fine totaling 10% or less of the construction cost will be imposed. Construction Permit On June 25, 2014, the MOHURD promulgated the Measures for the Administration of Construction Permits for Construction Projects, superseding its 1999 version. When the site has been properly prepared and is ready for the commencement of construction works, the developer must apply for a Construction Permit from the construction authorities at or above the county level according to the Measures for Administration of Granting Permission for Commencement of Construction Works promulgated by the MOHURD in June 2014. According to the Notice Regarding Strengthening and Regulating the Administration of Newly-commenced Projects issued by the General Office of the State Council on November 17, 2007, before commencement of construction, all projects shall fulfill certain conditions, including, among other things, compliance with national industrial policy, development plan, land supply policy and market access standard, completion of all approval and filing procedures, compliance with zoning plan in terms of site and planning, completion of proper land use procedures and obtaining proper environmental valuation approvals and construction permit or report. Construction Permit is a prerequisite to start the main construction. In addition, Construction Permit is a statutory requirement of engineering acceptance examination, pre-sale and sale of commodity house and registration of property rights. If we fail to obtain the Construction Permit, in a timely manner, or at all, the commencement of engineering construction may be delayed. In such circumstances, we may not be able to complete our engineering construction on time according to the land use contract so that we may need to pay for the liquidated damages and our land may be taken back by the government. Our business, results of operations and financial condition may be materially and adversely affected. Construction Acceptance Certificate According to the Development Regulations and the Regulation on the Quality Management of Construction Projects promulgated by State Council on January 30, 2000, as amended on October 7, 2017, and the Provisions on Acceptance Examination Upon Completion of Buildings and Municipal Infrastructure promulgated by MOHURD in December 2013, after the completion of construction of a project, the property must undergo inspection and receive relevant approvals from local authorities including planning bureaus, fire safety authorities and environmental protection authorities. Thereafter, the property development enterprise shall apply for a certificate of completion at the property development authority under the people's government at the county level or above. Once the examination has been completed, a Construction Acceptance Certificate will be issued. A real estate development project may only be delivered after passing the inspection and acceptance examination. Failure to obtain Construction Acceptance Certificate may affect our ability to delivery commodity houses, if we chose to sell residences as our business model. If we fail to deliver commodity houses on time according to the contract, purchasers may demand us to take the responsibility of breach of contract. Property Ownership Certificate Under the Measures for Administration of Sale of Commodity Properties, developers must submit the documents relating to the application for Property Ownership Certificates to the local real estate administration authorities within 60 days after the delivery of property to customers. The developers are required to assist customers in applying for amendments in the procedures for land use rights and registration procedures for property ownership. In accordance with the Measures for Administration of Pre-sale of Commodity Properties promulgated by ministry of construction on November 15, 2004 and amended on august 15, 2001 and July 20, 2004, the purchasers must apply for the individual Property Ownership Certificates to the local real estate administration authorities within 90 days after the delivery of pre-sale property to purchasers. The developers are required to assist and provide the purchasers with necessary verifying documents. Where the purchasers fail to obtain the individual Property Ownership Certificates within 90 days thereafter due to the developer's fault, unless otherwise provided between the developers and the purchasers, the developers will be liable for the breach of contract. Pursuant to Interpretations on Certain Issues Concerning the Application of Law in Trying Cases Involving Disputes over Contracts on Purchase and Sale of Commodity Premises by Supreme People's Court passed on March 24, 2003 and enforced on June 1, 2003, property developers are required to deliver to purchasers then relevant individual Property Ownership Certificates within 90 days after delivery of a presold property or 90 days after execution of sale agreement of a ready-built property or, within a time frame set out in the relevant sale agreement, unless the agreement provides otherwise. Property developers, including us, generally elect to specify a deadline for the delivery of the individual Property Ownership Certificates in the sale agreements to allow sufficient time for the application and approval processes. Under current regulations, we are required to submit the requisite governmental approvals in connection with our property developments, including Land Use Permit, Land Use Rights Certificates, Construction Planning Permits, Construction Permits, Construction Acceptance Certificates, to the local bureau of land resources and housing administration for the relevant properties and apply for the general Property Ownership Certificate in respect of these properties. According to Administrative Measures for the Sale of Commodity Houses issued by the MOHURD on April 4, 2001, we are required to submit related documents to the bureau for purchaser's application of individual Property Ownership Certificate subdivided from the general Property Ownership Certificate within 60 days after the delivery of property. We are required to assist property purchasers to go through related land use right alteration and house ownership registration procedures. Nevertheless, delays by the various administrative authorities in reviewing the application and granting approval and certain other factors may affect timely delivery of the general and individual Real Property Certificates. Therefore, we may not be able to deliver individual Real Property Certificates to purchasers on time as a result of delays in the administrative approval processes or for any other reason beyond its control, which may result in it having to pay default payments and, in the case of a prolonged delay, the purchaser terminating the sales agreement. If we become liable to a significant number of purchasers for late delivery of the individual Real Property Certificates, our business, financial condition and results of operations may be adversely affected. Regulation on Transfer of Property Interest According to Urban Real Estate Administration Law promulgated by the National People's Congress on July 5, 1994, as amended on August 30, 2007 and on August 27, 2009, transfer of real estate means moving the ownership of a real estate from the original owner to another person through sale, donation or other lawful means. When transferring a building, the ownership of the building and the Land Use Rights to the site on which the building is situated are transferred together. Where the Land Use Rights were originally obtained by assignment, the real property may only be transferred on the condition that: (a) the assignment price has been paid in full for the assignment of the land use rights as provided by the contract for the assignment of the land and a land use rights certificate has been obtained; (b) development has been carried out according to the contract for the assignment of the land and, in the case of a project in which buildings are being developed, development representing more than 25% of the total investment has been completed. The Provisional Industrial Building Transfer Measures and Detailed Implementation Rules on Industrial Building Transfer Measures promulgated by the People's Government of Shenzhen City on January 7, 2013 and December 6, 2013, respectively, provide legally built industrial buildings and public facilities on industrial land obtained legally by administrative allocation or through purchasing within administrative jurisdiction of the Shenzhen city may be wholly transferred in units of the parcel of land, unless otherwise stipulated by the laws, regulations, the present rules, the approval documents and the land use right granting contract. Industrial buildings can be divided and transferred as long as agreed upon the approval documents on land use or land use right granting contract. The industrial buildings built through urban renewal projects may be subdivided and transferred. As industrial facilities in urban renewal projects, offices, dormitories for the single, and small business services facilities may be divided and transferred, but its floor area shall not exceed 30% of the total floor area of the project. The rebuild industrial buildings formed through urban renewal projects may also sold through a pre-sale process prior to the completion of the construction. The transferee of such industrial buildings must be enterprises registered in accordance with the law. If the approval documents of land use, contracts of granting land use right or the municipal government regulations confines the assignee for purchasing the industrial buildings, the transferee must comply with the confining conditions and pass the qualification examination conducted by industry departments of district government. Industrial buildings must be transferred and mortgaged after the registration of real property rights and the acquisition of real property rights certificates. In accordance with the provisions of these regulations, the industrial buildings that may be divided and transferred shall be registered with the real property right and be issued the corresponding certificates by the basic units of one room on certain level of each building. In the transfer of industrial buildings, the transferor shall submit a certain proportion of the value-added income to the government, which shall be brought into the special management of a state-owned land income fund established by the government. The specific collection of regulations shall be separately formulated by the municipal land administration department. Value added income refers to the balance between the transaction price of the industrial building and the registered price plus relevant taxes paid by the transferor in the case of the industrial building. When the transfer of industrial buildings has been made in accordance with the provisions of these measures, and the land price has been paid, then this part of the price should also be deducted. Our Nam Tai Inno City project is a city renewal project and thus the property of Nam Tai Inno City project can be subdivided and transferred in part under the regulations. However, we are limited to selling our units in Nam Tai Inno City to enterprises, as opposed to individuals, as the buildings are still considered as industrial buildings. Our Nam Tai Inno Park project is neither a city renewal project nor stipulated in the land use contract for subdivision and partial transfer of less than the whole complex. So unless we re-execute land use rights contract for further rights that would allow us to subdivide and transfer in parts, we are not permitted to sell the subdivided units in Nam Tai Inno Park. As re-execution of the land use rights contract with rights of further subdivision will require us to pay additional land premium, our current plan is to conduct commercial leases or long-term leases for the remainder of the land use rights period with respect to the properties in our Nam Tai Inno Park. Under the current PRC regulations, there are certain restrictions placed on individuals purchasing residential units in a residential building. On October 4, 2016, the people's government of Shenzhen city promulgated the Measures Concerning Tightening Up Stable and Healthy Development of Real Estate Market, which provides, among other things, that each family with a Shenzhen registered residence may purchase no more than two residential units in a residential building within the Shenzhen city and the amount of the mortgage loan permitted also varies according to the specific circumstances. However, since our two projects are industrial buildings and the purchasers of units in our two projects are required to be enterprises as described above, the aforementioned restrictions do not apply, and our target enterprise purchasers may purchase any number of units. Nevertheless, as each successive owner of units in an industrial building must be enterprises, not individuals, this may affect the transferability of both our commercial and residential units. Furthermore, other restrictions placed on enterprises to obtain loans generally may also impose further financial pressure on any potential enterprise purchasers, as it may adversely affect their willingness to purchase our units or ability to source funding. Regulations on Leases The Measures for Administration of Lease of Commodity Housing promulgated by the MOHURD on December 1, 2010 and implemented on February 1, 2011, requires parties to a leasehold arrangement of a property shall register the leasing agreement with property administrative authorities within 30 days after entering into such leasing agreement under local government at the municipal or county level where the property is situated. In addition, enterprise may be imposed a fine of RMB1,000 to RMB10,000 and individuals of RMB1,000 or less if they do not register leasing agreement within time limit required by competent authorities. Regulations on Establishment of a Real Estate Development Enterprise Pursuant to the Law of the PRC on Administration of Urban Real Estate, or Urban Real Estate Administration Law, promulgated by the Standing Committee of the National People's Congress on July 5, 1994 and amended on August 30, 2007 and on August 27, 2009, a Real Estate Development Enterprise is defined as "an enterprise that engages in the development and sale of real estate for the purposes of making profits." Under the Regulations on Administration of Development and Operation of Urban Real Estate, or Development Regulation, promulgated by the State Council on July 20, 1998 and amended on January 8, 2011, a real estate development enterprise must satisfy the following requirements: - has a registered capital of not less than RMB1 million; and - has four or more full time professional real estate/construction technicians and two or more full time accounting officers, each of whom must hold the relevant qualifications To establish a Real Estate Development Enterprise, the developer is required to apply for registration with the department of administration of industry and commerce. The developer must also report its establishment to the real estate administration authority in the location of the registration authority within 30 days upon receipt of its business license. Our PRC subsidiaries may apply for the qualification as a Real Estate Development Enterprise in due course, which would allow such subsidiaries to conduct pre-sale of the constructed real estate units, if they choose to. To do so, besides meeting the requirements above, we will also need to comply with other laws and administrative regulations on foreign-invested enterprise (please see Regulations on Foreign-Invested Real Estate Enterprise for further details). Regulations on Foreign-Invested Real Estate Enterprise Under Catalogue of Guidance on Industries for Foreign Investment (Revised in 2017), real estate development falls within the category of industries in which foreign investment is permitted and certain of our PRC subsidiaries may apply for the Real Estate Development Enterprise qualification in due course. Opinions on Regulating Foreign Investment Access and Management of Real Estate Market jointly issued by MOHURD, MOFCOM, NDRC, PBOC, SAIC, and SAFE on July 11, 2006, as amended on August 19, 2015, stipulates that for Real Estate Enterprises established by foreign investment, their registered capital should be more than 50% of the total investment if the total investment is equal to or over US$10 million. Their registered capital should be no less than 50% of the total investment if the total investment is US$3 – US$10 million. Their registered capital should be no less than 70% of the total investment if the total investment is less than US$3 million. The current registered capital of our project subsidiary, Nam Tai Investment, is US$170 million, which we believe would allow it to meet the required registered capital under the regulation. On May 23, 2007, MOFCOM and SAFE promulgated Notice on Further Strengthening and Regulating the Approval and Supervision on Direct Foreign Investment on Real Estate, as amended on October 28, 2015, which provides: - to apply to establish a Real Estate Development Enterprise, one must obtain the Land Use Rights or ownership of the building first, or must sign assignment or purchase contracts with local land authorities or developer and owner of the building; only upon meeting the above requirements will the authorities approve the application; and - after properly established, if a foreign-invested enterprise intends to broaden its business scope for land development and operation, or to operate or develop new real estate business, one must apply relevant approval according to laws and regulations on foreign investment. Qualification of a Real Estate Developer Under the Rules on the Administration of Qualifications of Real Estate Developers promulgated on March 29, 2000 by MOHURD and effective on the same day (amended on May 4, 2015) a developer must apply for registration of its qualifications. An enterprise may not engage in the pre-sales of real estate units without a qualification classification certificate for real estate development. In accordance with the above rules, developers are classified into four classes: class I, class II, class III and class IV. A developer that passes the qualification examination will be issued a qualification certificate of the relevant class by the relevant construction authority. Under the Development Regulations, real estate administration authorities examine all applications for the registration of the qualifications of a developer when it reports its establishment, by considering its assets, professional personnel and business results. A developer may only undertake real estate development projects in compliance with the approved qualification registration. After a newly established developer reports its establishment to the real estate administration authority, the latter will issue a provisional qualification certificate to the eligible developer within 30 days of its qualification of the above report. The provisional qualification certificate will be effective for one year from its date of issue and may be extended for not more than two additional years with the approval of the real estate development authority. The developer must apply for the qualification classification by the real estate administration authority within one month before expiry of the provisional qualification certificate. Regulations on Pre-sale of Units According to Urban Real Estate Administration Law promulgated by the National People's Congress on July 5, 1994, as amended on August 30, 2007 and on August 27, 2009, a commodity building may be sold before completion if: (a) the assignment price has been paid in full for the grant of the land use rights involved and a Land Use Rights Certificate has been obtained; (b) Construction Planning Permit and Construction Permit have been obtained; (c) the funds invested in the development of the commodity buildings put to pre-sale represent 25% or more of the total investment in the project and the progress of works and the completion and delivery dates have been ascertained; and (d) the pre-sale has been registered and a Pre-sale Permit has been obtained. The pre-sale seller shall, in accordance with the relevant state provisions, report the pre-sale contracts for record-filing to real estate administration and land administration departments of the people's government above the county level. The pre-sale proceeds of commodity buildings must be used to develop the relevant project so pre-sold. According to the Development Regulations and the Measures for Administration of Pre-sale of Commodity Buildings promulgated by Ministry of Construction on November 15, 1994 and as amended on August 15, 2001 and July 20, 2004, the term "pre-sale of commodity houses" refers to the act that the real estate development enterprises sell the houses under construction to purchasers and the purchasers pay the earnest money or the prices of houses. The pre-sale of commodity houses shall be subject to the licensing system. Where a real estate development enterprise intends to sell commodity houses in advance, it shall apply to the real estate administrative department for pre-sale approval so as to obtain the Pre-Sale Permit. Real estate development enterprise must register contracts of pre-sale of commercial housing with the competent real estate authority and the relevant land administration of the people's government at the city or county level within 30 days after the date of execution of the contract and the purchasers shall go through the procedure of change in registration of land use right and registration of individual property ownership within 90 days after delivery of a presold property to obtain the individual property ownership certificates in respect of the properties purchased by the purchasers. While our current plan for Phase I of Nam Tai Inno City does not involve pre-sale, we may pre-sale certain units in Phase II of Nam Tai Inno City. We may do so after we have obtained the Real Estate Development Enterprise qualification certificate and satisfy the above pre-sale conditions. If we fail to obtain the certificate in a timely manner, or at all, we would not be permitted to pre-sell our units, which may result in a delay in our profit making. Our business, results of operations and financial condition may be materially and adversely affected. Measures on Property Price According to Measures on Pre-sale Price Filing of Commodity Buildings of Shenzhen City promulgated by Market and Quality Supervision Commission of Shenzhen Municipality on June 25, 2011, as amended in May 2017, pre-sale price filing of Commodity Buildings refers to real estate enterprises' liability to inform competent department the sale price of the commodity buildings when a real estate enterprise intends to pre-sell a unit or the price adjustment is beyond the certain range of the recent filing price. A real estate enterprise should file the pre-sale price to the sub bureau of Quality Supervision Commission Shenzhen Municipality. The government sets the ceiling price of commodity buildings. The pre-sale price of a certain property may not exceed the ceiling price. If a Real Estate Development Enterprise doesn't file pre-sale price to competent department or fails to file in a timely manner, then the enterprise would not be able to obtain the pre-sale permit to pre-sell commodity buildings. Major Taxes Applicable to Property Developers Land Appreciation Tax Under the PRC Interim Regulation on Land Appreciation Tax of 1994 and its implementation rules of 1995, as amended in 2011, Land Appreciation Tax ("LAT") applies to both domestic and foreign investors in real properties in mainland China, irrespective of whether they are corporate entities or individuals. The tax is payable by a taxpayer on the appreciation value derived from the transfer of land use rights, buildings or other facilities on such land, after deducting the "deductible items" that include the following: - payments made to acquire land use rights;- costs and charges incurred in connection with the land development;- construction costs and charges in the case of newly constructed buildings and facilities;- assessed value in the case of old buildings and facilities;- taxes paid or payable in connection with the transfer of the land use rights, buildings or other facilities on such land; and - other items allowed by the Ministry of Finance. The tax rate is progressive and ranges from 30% to 60% of the appreciation value as compared to the "deductible items" as follows: Appreciation value   LAT rate Portion not exceeding 50% of deductible items     30% Portion over 50% but not more than 100% of deductible items         40% Portion over 100% but not more than 200% of deductible items     50% Portion over 200% of deductible items                  60% After the enactment of the LAT regulations and the implementation rules in 1994 and 1995, respectively, due to the long period of time typically required for real estate developments and their transfers, many jurisdictions, while implementing these regulations and rules, did not require real estate development enterprises to declare and pay the LAT as they did other taxes. Therefore, in order to assist the local tax authorities in the collection of LAT, the Ministry of Finance, State Administration of Taxation, Ministry of Construction and State Land Administration Bureau separately and jointly issued several notices to reiterate that, after the assignments are signed, the taxpayers should declare the tax to the local tax authorities where the real estate is located, and pay the LAT in accordance with the amount as calculated by the tax authority and within the time period as required. For those who fail to acquire proof as regards the tax paid or the tax exemption from the tax authorities, the real estate administration authority will not process the relevant title change procedures, and will not issue the property ownership certificates. We will be subject to LAT if we choose to sell, instead of lease, our units. Tax The PRC Interim Regulation on Business Tax of 1994, as amended in December 2008, provided that business tax for PRC enterprises would be officially abolished by November 2017. The Detailed Implementation Rules of the Interim Regulation of the PRC on Business Tax issued and implemented by Ministry of Finance on December 25, 1993, and as amended on December 15, 2008 and October 28, 2011, although not officially abolished, are now deemed as no longer in effect. Pursuant to the Circular on Comprehensively Promoting the Pilot Program of Replacing Business Tax with Value Added Tax which was promulgated by the Ministry of Finance and the State Administration of Taxation on March 23, 2016 and became effective on May 1, 2016, and further revised by The Notice on the Policy of Replacing Business Tax with Value Added Tax in Construction Services, which was implemented on July 1, 2017, the government will levy Valued Added Tax in lieu of business tax on a trial basis within the territory of the PRC, and any taxable activities of taxpayers shall be subject to a tax rate of 6% except for the taxpayer providing transportation, postal, telecom, construction, real estate leasing service, selling real estate, transferring land use right, leasing services of tangible personal property, and any cross-border taxable activity conducted by an entity or individual within the territory. To provide services related to transportation, postal, telecom, construction, real estate leasing service, selling real estate and transferring land use right, the tax rate is 11%. To provide leasing services of tangible personal property, the tax rate is 17%. For any cross-border taxable activity conducted by an entity or individual within the territory, the tax rate is zero. For the general taxpayers of real estate developers who sell the real estate projects (excluding the old real estate projects to which the simple tax calculation method is applicable) developed by them, the sales amount shall be the balance of the total price and other charges gained after the deduction of the land price paid to the government departments at the time of acceptance of the transferred land. Pursuant to the Interim Measures on the Management of Value Added Tax of Self-developed Real Estate Project by the Sale of Real Estate Developers issued on March 31, 2016 and implemented on May 1, 2016 by State Administration of Taxation, in the event that a real estate developer recognized as an ordinary taxpayer sells a self-developed real estate project, the general tax calculation method shall be adopted, and the obtained total consideration and other charges after the deduction of the corresponding land price of the real estate project sold for the current period shall be the sales amount. Corporate income tax In 2007, the PRC government adopted the PRC Corporate Income Tax Law and the related implementation rules, which became effective on January 1, 2008 and was amended on February 24, 2017. Under the PRC Corporate Income Tax Law, a unified income tax rate of 25% is applied to all PRC enterprises, including foreign-invested enterprises. In addition, according to the Enterprise Income Tax Laws, dividends from PRC subsidiaries to their foreign corporate shareholders are subject to a withholding tax at a rate of 10% unless any lower treaty rate is applicable. Urban Land Use Tax and Buildings Tax Pursuant to the PRC Interim Regulations on Land Use Tax in respect of Urban Land promulgated by the State Council in September 1988, amended on December 31, 2006, January 8, 2011 and in December 2013, the land use tax in respect of urban land is levied according to the area of relevant land. The annual tax on urban land was between RMB0.6 and RMB30 per square meter. Property Tax. Under the PRC Interim Regulations on Property Tax promulgated by the State Council in September 1986, and amended on January 8, 2011, property tax applicable to domestic enterprises is 1.2% if it is calculated on the basis of the residual value of a building and 12% if it is calculated on the basis of the rental. On January 27, 2011, the governments of Shanghai and Chongqing respectively issued measures for implementing pilot individual property tax schemes which became effective on January 28, 2011. According to the Notice on Issues Relating to Assessment of Buildings Tax against Foreign-invested Enterprises and Foreign Individuals issued by the Ministry of Finance and SAT in January 2009, the foreign-invested enterprises, foreign enterprises and foreign individuals are to be levied the same as domestic enterprise. Stamp Duty Under the PRC Interim Regulations on Stamp Duty promulgated by the State Council in August 1988, and amended on January 8, 2011, for property transfer instruments, including those in respect of property ownership transfers, the duty rate is 0.05% of the amount stated therein; for permits and certificates relating to rights, including property ownership certificates and land use rights certificates, stamp duty is levied on an item-by-item basis of RMB5 per item. Municipal Maintenance Tax Under the PRC Interim Regulations on Municipal Maintenance Tax promulgated by the State Council in 1985, and amended on January 8, 2011, any taxpayer, whether an individual or otherwise, of product tax, value-added tax or business tax is required to pay municipal maintenance tax calculated on the basis of product tax, value-added tax and business tax. The tax rate is 7% for a taxpayer whose domicile is in an urban area, 5% for a taxpayer whose domicile is in a county or a town, and 1% for a taxpayer whose domicile is not in any urban area or county or town. According to the Circular Concerning Unification of Municipal Maintenance Tax and Education Surcharge for Foreign Investment and Domestic Enterprises and Individuals issued by State Council on October 18, 2010, the municipal maintenance tax is applicable to foreign invested enterprises, foreign enterprises and foreign individuals from December 1, 2010. Education Surcharge Under the Interim Provisions on Imposition of Education Surcharge promulgated by the State Council in April 1986 and amended on June 7, 1990, August 20, 2005 and January 8, 2011, any taxpayer, whether an individual or otherwise, of value-added tax, business tax or consumption tax is liable for an education surcharge, unless such taxpayer is required to pay a rural area education surcharge as provided by the Notice of the State Council on Raising Funds for Schools in Rural Areas. The Education Surcharge rate is 3% calculated on the basis of consumption tax, value-added tax and business tax. According to the Circular Concerning Unification of Municipal Maintenance Tax and Education Surcharge for Foreign Investment and Domestic Enterprises and Individuals issued by State Council on October 18, 2010, the education surcharge is applicable to foreign invested enterprises, foreign enterprises and foreign individuals from December 1, 2010. Regulations on Property Management The Property Management Rules, amended by the State Council on August 26, 2007 and effective as of October 1, 2007, as amended on February 6, 2016, provide that property owners have the right to appoint and dismiss property service enterprises. The rules also establish a regulatory system for property service enterprises, which encompasses the following regulations: - the Measures for the Administration of Qualifications of Property Service Enterprises amended by the MOHURD and effective as of November 26, 2007, provide that property service enterprises must apply to the local branch of the MOHURD and undertake a qualification examination to obtain a Property Service Qualification Certificate. A property service enterprise must pass the Property Service Qualification, or PSQ examination, in order to engage in property management. Property service enterprises are classified as Class I, II or III. Different classes of service enterprises have different establishment requirements and may manage different types of premises. - The Provisional Measures on the Administration of Initial Property Management Bid-inviting and Bidding, promulgated on June 26, 2003 by the MOHURD, provide that prior to the selection of the Property Owners' Committee, or the POC, the property developer must select a property service enterprise to provide property management services. - the NDRC and the MOHURD jointly promulgated the Rules on Property Management Service Fees on November 13, 2003, which provide that property management fees shall be determined by mutual consent between the POC and the property service enterprise, and set forth in writing in the property management service contract. Regulations on Construction Safety Under relevant laws and regulations such as the Laws for Safe Production in the PRC promulgated by the Standing Committee of the National People's Congress in November 2002 and as amended on August 31, 2014, the property development enterprise should apply to the supervisory department on safety for the registration of supervision for work safety in construction before the commencement of construction. Constructions without such registration will not be granted a construction works commencement permit by the supervisory body. Contractors for the construction should establish the objectives and measures for work safety and improve the working environment and conditions of workers in a planned and systematic way. A work safety protection scheme should also be set up to carry out the work safety job responsibility system. At the same time, contractors should adopt corresponding site work safety protective measures according to the work protection requirements in different construction stages and such measures shall comply with the labor safety and hygiene standards of the State. Under the Construction Law of the People's Republic of China, the construction contractor assumes responsibility for the safety of the construction site. The main contractor will take overall responsibility for the site, and the subcontractors are required to comply with the protective measures adopted by the main contractor. Regulations on Environmental Protection in Construction Projects Under the Regulations on the Administration of Environmental Protection in Construction Project, or Environmental Regulations, promulgated by the State Council on November 29, 1998 and effective as of the same date, as amended on July 16, 2017, each construction project is subject to an environmental impact assessment by the relevant authorities. According to the Environmental Regulations, a developer is required to submit an environmental impact report, or an environmental impact report form, or an environmental impact registration form (as the case may be) to the relevant environmental protection administration for approval during the project's feasibility analysis stage. In the meantime, if any ancillary environmental protection facilities are necessary in the construction project, such facilities are required to be designed, constructed and used in conjunction with the main project. After completion of the project, the developers are required to apply to the relevant environmental protection administrations for final acceptance examination in respect of any ancillary environmental protection facilities. Construction projects are approved for use after passing the said acceptance examination. The Environmental Impact Assessment Law, promulgated by the National People's Congress on October 28, 2002 and effective as of September 1, 2003, as amended on July 2, 2016, provides that if the environmental impact assessment documents of a construction project have not been examined by the relevant environmental protection administrations or are not approved after examination, the authority in charge of examination and approval of the project may not approve construction on the project, and the construction work unit may not commence work. On July 6, 2006, the State Environmental Protection Administration issued its Circular on Strengthening the Environmental Protection Examination and Approval and Strictly Controlling New Construction Project, which provides for stringent examination and approval procedures for various real estate development projects. It also stipulates that no approvals may be issued for new residential projects or extensions in industry development zones, areas impacted by industrial enterprises or areas where such development poses potential harm to residents' health Pursuant to the requirements of relevant laws and regulations such as the Appraisal Measures for the Impact on the Environment of the PRC implemented by the Standing Committee of the National People's Congress in September 2003 and amended on July 2, 2016, and the Regulations Governing Environmental Protection of Construction Projects amended by the State Council in July, 2017, property development enterprises and construction enterprises must carry out an appraisal of the impact the construction project will have on the environment. The relevant project shall not commence until approval is obtained from the supervisory body for environmental protection. While the project is in progress, the developer should also comply with the appraisal documents relating to the impact on the environment and implement the environmental protection measures set out in the opinion of the supervisory body for environmental protection. Such measures must be incorporated into the design, construction and operation of the general construction. Upon completion of the project, the developer should apply to the supervisory body for environmental protection for the inspection and acceptance of the completed environmental protection facilities. Only those projects that have been inspected and accepted may go into operation or be available for use. Insurance There is no mandatory provision under the PRC laws, regulations and government rules which require a property developer to take out insurance policies for its real estate developments. According to the common practice of the property industry in China, construction companies are usually required to submit insurance proposals in the course of tendering and bidding for construction projects. Construction companies must pay for the insurance premium at their own costs and take out insurance to cover their liabilities, such as third party's liability risk, employer's liability risk, risk of non-performance of contract in the course of construction and other kinds of risks associated with the construction and installation works throughout the construction period. The insurance coverage for all these risks will cease immediately after the completion and acceptance upon inspection of construction.

In the ordinary course of our business, claims and disputes involving project owners, customers, labor subcontractors, suppliers, business partners and regulatory authorities may be brought against us and by us in connection with our contracts or business. Claims may be brought against us for alleged defective or incomplete work, liabilities for defective products, related personal injuries and death, damage to or destruction of property, breaches of warranty and late completion of the project, as well as claims relating to taxes, among others. Such claims can involve actual damages and liquidated damages. If found to be liable, we would have to incur a charge against earnings to the extent a reserve had not been established for the matter in our accounts, or to the extent the claims were not sufficiently covered by our insurance. Claims between us and our labor subcontractors and vendors may include claims similar to those described above. We may also engage in disputes with regulatory authorities on tax-related matters in connection with our business and operations. Both claims brought against us and by us, if not resolved through negotiation, are often subject to lengthy and expensive litigation or arbitration proceedings such that the amounts ultimately realized from claims by us could differ from the balances included in our consolidated financial statements. Such claims could therefore have an adverse impact on our business, financial condition and results of operations.

Under PRC law before 2008, we were afforded a number of tax concessions by, and tax refunds from, PRC tax authorities on a substantial portion of our operations in China by reinvesting all or part of the profits attributable to our PRC manufacturing operations. However, on March 16, 2007, the PRC government enacted a unified enterprise income tax law or EIT, which became effective on January 1, 2008. Prior to the EIT, as a foreign invested enterprise, or "FIE", located in Shenzhen, China, our PRC subsidiaries enjoyed a national income tax rate of 15% and were exempted from the 3% local income tax. The preferential tax treatment given to our subsidiaries in the PRC as a result of reinvesting their profits earned in previous years in the PRC also expired on January 1, 2008. Under the EIT, most domestic enterprises and FIEs are subject to a single PRC enterprise income tax rate of 25% from 2012 onwards. For information on the EIT rates as announced by the PRC's State Council for the transition period until year 2013, please see the table in ITEM 5. Operating and Financial Review and Prospects on page 40 of this Report. We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various administrative regions and countries in which we have assets or conduct activities; however, our tax position is subject to review and possible challenge by taxing authorities and to possible changes in law, which may have retroactive effect. According to Circular of the State Administration of Taxation on Issues Related to the End of Various Preferential Tax Policies for Foreign and Foreign-Invested Enterprises (STA [2008] No. 23) published by the State Administration of Taxation of the PRC) on February 27, 2008, a FIE may be required to pay back the taxes previously exempted as a result of the preferential tax treatment enjoyed in accordance with the Income Tax Law of People's Republic of China for Foreign Investment Enterprises and Foreign Enterprise, if such FIE no longer meets the conditions for preferential tax treatment after 2008 due to a change in its nature of business or if the term of its business operation is determined to be less than ten years since its inception. As we have ceased our production operations at all of our manufacturing facilities and are switching our core business to property development and management, our tax position may be subject to review by relevant tax authorities, and we cannot determine in advance whether, or the extent to which, such tax policy may require us to pay taxes or make payments in lieu of taxes.

The progress and costs for a development project can be adversely affected by many factors, including, without limitation: - delays in obtaining necessary licenses, certificates, permits or approvals from government agencies or authorities;- shortage of materials, equipment, contractors and skilled labor or increased labor or raw material costs;- failure by our third-party contractors to comply with our designs, specifications or standards;- onsite labor disputes or work accidents; and - natural catastrophes or adverse weather conditions, including strong winds, storms, floods, and earthquakes. Any construction delays, or failure to complete a project according to our planned specifications or budget, may delay our property leasing timetable, which could adversely affect our revenues, cash flows and our reputation. We may also be penalized if we fail to complete our projects on time as agreed with the local planning activities.

We depend on our suppliers to provide us with sufficient quantities of raw materials such as steel, cement, sand, ballast and timber at acceptable prices and in a timely manner. As we are a new comer to the real estate development industry, we do not have long-term relationships with these suppliers and typically engage them only on a per project basis. Our project-specific supply contracts usually last only as long as the life of the individual project and we have not identified any other project for development beyond Nam Tai Inno Park and Nam Tai Inno City. As such, during times of short supply or price hikes, we may have to pay significantly higher prices to obtain sufficient raw materials or locate alternative suppliers. We have not entered into any raw materials hedging contracts. We also need raw materials of acceptable quality to maintain the quality of our work. Any failure to obtain adequate raw materials, or failure to do so on commercially acceptable terms and in a timely manner, could interfere with our operations and adversely affect the results of our operations. Our future revenues and earnings from leasing or selling properties are subject to the fluctuation of the real estate prices in China, particularly in Shenzhen. We may encounter substantial cost increases, cost overruns or delays in connection with the future development of our projects.

As we seek to grow our real estate portfolio by developing more of our own projects, including Nam Tai Inno Park and Nam Tai Inno City, income from these projects will become an increasingly important contributor to our revenue going forward. The success of our sales and leasing strategies for our properties, however, is not assured. An increase in the number of competing properties by developers in close proximity could increase competition for purchasers and tenants, and force us to reduce rent or sale prices or incur additional costs to make our properties more attractive. Moreover, competition among real estate developers may result in an increase in costs or a shortage of raw materials, an oversupply of properties, an inability to sell such properties, or an increase in administrative costs for hiring or retaining qualified personnel, any of which may adversely affect our business, financial condition and results of operations. If we cannot remain competitive against other property developers in the areas in which our properties are situated, our profitability and prospects could be adversely affected.