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Shanghai ranked 5th among Asia Pacific cities for real estate investment

By Wang Ying (chinadaily.com.cn)
Updated: 2008-12-10 18:41

The bite of the deteriorating credit crunch has been felt on Shanghai's property investment prospects, said a report published on Tuesday on Emerging Trends in Real Estate in Asia Pacific.

Shanghai falls to fifth in the rankings of Asian Pacific cities with the best property investment returns due to the gloomy economic outlook and sagging property market. Last year, the city occupied No. 1 position.

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The report, published by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP, features investment and development prospects for 20 metropolitan markets in Asia Pacific based on surveys and interviews with hundreds of the industry's leading authorities including investors, developers, property company representatives, lenders, brokers and consultants.

Opportunities are still available, but as one interviewee said, "There will continue to be a growing demand for offices in Shanghai but the supply is only increasing at a small pace relative to the market size." While vacancies are still in control, one interviewee believed that might change, "Rents are projected to rise along with prices."

The strongest buy and hold recommendation for Shanghai were in the industrial/distribution sector, with 48 percent of respondents recommending buying, 35 percent holding and 17 percent selling. Retail rated buy recommendations from 40 percent of respondents, hold from 45 percent and sell from 15 percent.

The office sector received 36 percent buy recommendations, 41 percent hold and 23 percent sell. Residential apartments (rental) were a strong hold from 49 percent of respondents, a buy from 28 percent and a sell from 23 percent.

In addition to the outlook for markets, Emerging Trends also contains investment and development prospects for individual property sectors including office, retail, industrial/distribution space, hotels and residential.

"Asia shares the same liquidity crises that the rest of the world is facing," said Stephen Blank, ULI senior resident fellow for finance.

"Financial institutions - whether international or national, regional or local - are reluctant to extend credit as de-leveraging reduces balance sheet lending capacity. While fundamentals in most market and property sectors will be impacted by the prospect of global recession, financing will be the single biggest issue facing the industry in 2009," Blank said to institute members at a meeting in Shanghai on Tuesday.

"The new paradigm will favor players with deep pockets, clean balance sheets and good relationships with potential lenders," said KK So of PricewaterhouseCoopers Real Estate Tax Leader in Asia Pacific.

However, according to So, there are still 10 billion dollars waiting to pour into Asian markets in 2009, with the focus on emerging markets like China and India.

The 20 Asia Pacific cities included in Emerging Trends fall into different categories based on each market's investment and development prospects and respondents' opinions about buying, holding or selling specific property types within each market.

Joining Tokyo in the top five investment cities are Singapore, Hong Kong, Bangalore and Shanghai. All of these cities reflect a sentiment to hold or buy most property types. In the top five development markets, Bangalore is ranked first, followed by Ho Chi Minh City, Mumbai, New Delhi and Taipei.

Among the most promising property sectors, offices took top ranking for both investment and development. Ho Chi Minh City is ranked the best market for office properties, followed by Tokyo, Mumbai, Shanghai and Bangalore.

The industrial/distribution sector ranked second for favored property types. Shanghai got top rating, followed by Ho Chi Minh City, Bangalore, Mumbai and Guangzhou.

Retail ranked third in property sectors, with buy, hold and sell recommendations depending on the market. Ho Chi Minh City ranked first, followed by Mumbai, Shanghai, Bangalore and Beijing.

Residential (rental) apartments ranked fourth in property sectors with Ho Chi Minh City, Mumbai, Bangalore, Tokyo and Taipei the top five markets.

Hotels witnessed a major drop from last year, when it was the favored property type. Top five markets are: Mumbai, Bangalore, Ho Chi Minh City, New Delhi and Shanghai.