Shanghai Real Estate - A Can’t Lose Bet?
Do you think Shanghai Real Estate is a ‘can’t lose’ proposition?
Working around China Real Estate Regulations
The following article, translated out of this week’s Modern Weekly, talks about some of the ways overseas investment funds and companies are working around the growing regulations from the Chinese government over foreigners investing in the still hot mainland China real estate market.
To be honest, the article is somewhat lacking in useful specifics, but it does show that Shanghai is still seen as an irresistible market, and one that cannot fail, by most foreign investors. With prices that have risen from 300-400% or more since 1996, this kind of attitude about real estate in the hot mainland China coastal markets might turn out to be quite wrong, at least in the short to medium term. Signs of overheating abound in the Chinese real estate market, just one is the massive influx of foreign capital described in the article below as well as this article about investing inflows from the middle east.
And if you want more proof of the need to question the sustainability of a run-up in Shanghai real estate articles, check out this article about the recent drop in Shanghai real estate prices.
Side Attack [on China's Real Estate Market]
Faced with enormous temptations, can a simple “foreign capital restriction decree” stop overseas investment funds from making a sneak attack on the mainland China real estate market?
110 villas with a total price of 950 Million RMB. Even a “foreign capital restriction decree” can’t stop the giant hand of Carlyle investment group from reaching out for an alluring piece from this part of the mainland China real estate market.
The 110 villas Carlyle is purchasing all belong to the same housing development, and border the Shanghai Qizhong International Tennis Center — the location of the “Masters’ Cup”. These villas are being marketed as part of an all-in-one lifestyle community, with the average price of each villa at about 8.6 Million RMB, or well over $1 Million.
American economists once estimated that as an economy rapidly develops, the prices of travel and resort villas take off even faster. America was this way, and China has no reason not to also follow this rule. Carlyle will probably rent out these villas, seeking a long term investment gain.
Since entering the mainland market two years ago, Carlyle has made quite a few investments in China. Up until now, they have mainly been concentrated in business acquisitions and venture capital investments. In spite of forming a $401 Million Asian real estate investment fund in 2005, Carlyle has maintained a “look but don’t touch” attitude toward the mainland China real estate market… until now.
China Real Estate Prices will Increase
The rapid expansion of the Chinese middle class along with the rise of the RMB will cause real estate prices to increase. This fundamental assumption by foreign investors has not changed. This substantial investment by Carlyle in the Shanghai real estate market has further ignited the industry’s hopes in China.
Looking at the long term picture, the Chinese real estate market still has many investment opportunities. The possibility of the RMB rising further in value is especially tempting to holders of foreign capital. In order to get long term returns on investment, they will try every type of method to dodge the “foreign capital restriction decree”, making ’sneak attacks’ to enter the mainland China real estate market.
Before this move by Carlyle, Singapore’s Ascendas Group already had made use of stock purchases totaling $166 million to gain control of a premium apartment complex named Haiyang Mansions in downtown Shanghai. Citigroup is also in the process of acquiring part of the premium residences in Daning International Commercial Square (in Shanghai’s North Zha District) for an estimated $65 Million.
Industry analysts point out that the “foreign capital restriction decree” has not had a large influence in the sentiments of foreign investment groups, it only increases the cost and time to completion of transactions. Overseas investment funds have adjusted their investment strategies, and have come up with methods as diverse as buying entire office or shopping buildings, full service apartments, or purchasing a controlling stake in mainland China real estate investment companies.
