Shanghai 'ranks high' in region for real estate investment

Shanghai is the second-most attractive investment market after Tokyo in the Asia-Pacific region, a report said on Thursday.

Despite stagnant rental growth, real estate in the nation's financial hub continues to draw international investors because Shanghai is widely perceived as a well-known, low-risk market for those who are unwilling to venture into lesser-known cities, according to Emerging Trends in Real Estate Asia-Pacific 2014, a real estate forecast jointly published by the United States-based Urban Land Institute and financial services firm PricewaterhouseCoopers.

Shanghai offers a "level of comfort" to funds with a mandate to place money in China, the report said. And it's the fourth most promising development market for 2014 in the eyes of industry leaders, the report said.

Guangzhou ranks sixth for investment prospects and fifth for development potential. Also in Guangdong province, Shenzhen climbed the ranks as a development destination (rising from 11th place to third), thanks to the launch of the Qianhai experimental financial zone.

The appeal of Beijing as a development prospect (in sixth place) is higher than on the investment front (eighth), reflecting the possibility that high prices may push investors toward more opportunistic development plays, according to the report.

The report was based on a survey of internationally known property investors and developers, property company representatives, lenders, brokers and consultants.

It provides an outlook for Asia-Pacific real estate investment and development trends, real estate finance and capital markets and trends by property sector and metropolitan area.

The industrial/logistics sector is the top-rated segment of the industry for investment potential, because of the need for additional warehouse facilities to handle increased online spending by Asians.

China's secondary cities, as well as Shanghai and Guangzhou, are regarded as the best bets for investments in industrial property by the report.

Real estate fundamentals are expected to remain strong throughout Asia in 2014, with stiff competition for conventional assets in prime markets boosting the popularity of niche property sectors and secondary markets for investments, according to the report.

Unlike other asset classes, real estate in Asia "barely flinched" this year in response to the expected tapering of US monetary policy.

That's partly because of the increase in sovereign wealth and institutional capital being directed to Asian markets, as well as the substantial volume of Asian capital moving from China, Singapore and South Korea into real estate assets across the region, according to Kenneth Rhee, chief executive officer of Huhan Advisory and chief representative of the ULI on the Chinese mainland.

"The survey also reports a higher level of Chinese capital in almost every major Asian market, indicating a strong outbound trend among Chinese developers, said Roland Xu, a PwC China partner.

"As Chinese developers join the international real estate arena, strategic planning and higher-level risk management need to be added to the agenda," Xu added.