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BIZCHINA / Weekly Roundup

Report says real estate market in good health

By Cao Qian (Shanghai Daily)
Updated: 2007-04-03 13:59

Direct real estate investment in China jumped 70 percent to US$9.91
billion last year from a year earlier as foreign investors, betting on a
strong economic growth for China in the long-term, continued to be
optimistic with the country's real estate market, Jones Lang LaSalle, a
leading global property adviser, said in its newly released Global
Capital Flow report.

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"For the whole of 2006, we saw numerous new players enter the market
while investors with existing projects in China continued to acquire
assets, despite the fact that some new measures were introduced by the
central government to cool down the overheated real estate market," wrote
Terence Tang, head of China investments for Jones Lang LaSalle.

For instance, Morgan Stanley and Citigroup have acquired more residential
properties in Shanghai. And the Carlyle Group, one of the world's largest
private equity firms, was also reported to have made its first investment
in China's real estate market by acquiring 110 villas in Minhang District
in Shanghai. Moreover, a major Korean fund purchased Hopson International
Tower in Lujiazui in Pudong.

In July, the central government introduced Circular No. 171 - also known
as "Opinions on regulating the administration and entry of foreign
investment to the real estate sector" - which has made foreign investment
in the country more restrictive.

Industry people agreed that those measures have had some impact on the
real estate market in terms of strengthening market controls and
promoting healthy and sustainable development.

A number of investors, especially those expanding their investment into
later phases of projects, have had to rework investment structures in the
second half of last year. And others have had to structure multiple
contracts to separate elements of mixed-use projects to allow flexibility
for changes in ownership structure

"The measures will restrict but not discourage property investments by
institutional investors," Terence added. "The capital flow into the
Chinese real estate market is still growing and more investors will
continue to look for quality assets to acquire. We expect to see a more
developed real estate investment market in the new year."

While major cities like Beijing, Shanghai and Guangzhou remained the
focus for foreign investors, second-tier cities such as Chengdu, Wuhan
and Tianjin have also been put on the investors' radar screen.

The yield compression in major cities as well as the lack of
opportunities are diverting some institutional investors' attention to
second-tier cities, where a substantial increase in investments made by
foreign investors was recorded in the second half of last year.

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