2012 Annual Report - ZTE

ZTE CORPORATIONNotes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201216. INVESTMENT PROPERTIESGroupCompany2012 2011 2012 2011RMB’000 RMB’000 RMB’000 RMB’000Fair valueCarrying amount at 1 January 2012 — — — —Transfer from owner-occupied propertiesProperty, plant and equipment(note 15) 721,315 — 439,004 —Prepaid land lease payments (note 17) 47,853 — 30,563 —769,168 — 469,567 —Revaluation gain upon transfer fromowner-occupied properties toinvestment properties 932,669 — 922,664 —Fair value on transfer date 1,701,837 1,392,231Net gain from a fair value adjustment(note 6) (15,679) — (10,638) —Carrying amount at 31 December 2012 1,686,158 — 1,381,593 —Completed investment properties 633,289 — 633,289 —Investment properties under construction 1,052,869 — 748,304 —1,686,158 — 1,381,593 —The Group’s investment properties are situated in Mainland China and are held under a medium term lease.The Group’s investment properties were revalued on 31 December 2012 by 深 圳 市 天 健 國 衆 聯 資 產 評 估 土 地房 地 產 估 價 有 限 公 司 , independent professionally qualified valuers, at RMB1,686,158,000 on an open market,existing use basis. The investment properties are leased to a related party, Shenzhen Zhongxing Hetai HotelInvestment and Management Company Limited (“Zhongxing Hetai”) and third-parties under operating leases,further summary details of which are included in note 52 to the financial statements.Valuations were based on either: (i) direct comparison approach assuming sale of each of these propertiesin its existing state with the benefit of vacant possession by making reference to comparable salestransactions as available in the relevant market; or (ii) residual method of valuation which is common invaluing development sites by establishing the market value of the properties on an “as-if” completed basiswith appropriate deduction on construction costs, professional fees and interest payments to be incurred aswell as developer’s profits; or (iii) capitalisation of net rental income derived from the existing tenancies withallowance for the reversionary income potential of the properties, using discount rates that reflect currentmarket assessments of the uncertainty in the amount and timing of the cash flows. The resultant figures areadjusted back to present values to reflect the existing state of the properties on the balance sheet date.378