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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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(For more biz stories, please visit Industry Updates)



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