If you ever need proof of how quickly the world is changing, look at China. Once fiercely anti-market, this mega-economy is now a huge creditor nation and the subject of massive investment. And within this fascinating country, Shanghai is growing exponentially, with a building programme of a scale that defies belief. Little wonder, then, that the property market in Shanghai is booming.
Investors who want to see the next big thing should look east, say property experts. With growth in UK property prices slowing after a prolonged boom, serious investors have looked overseas for new buy-to-let markets. Many have identified Shanghai as offering excellent long-term prospects and have invested there with great success.
According to Dominic Keogh, managing director of Shanghai Vision, the leading Shanghai-based specialist in the market, the city is still booming in 2006.
‘Demand is certainly strong. Apartment sales doubled in March compared with February. Enormous, growing foreign investment is bringing a massive influx of Chinese and overseas workers into the city, creating a thriving property rental market. Value growth of the property is strong at between ten and 15 per cent.
‘In addition, many City of London investors have bought for the opportunity to invest in the Chinese currency, which is seriously undervalued and providing exciting returns. The opening of Shanghai’s World Financial Centre this year - twice the size of Canary Wharf - is generating massive interest in apartments in the Pudong area.’ City of London investors see what’s happening in Shanghai as similar to the rapid growth in Wapping and Docklands properties, says Keogh.
It is not just a handful of adventurous investors. Shanghai Vision has helped 350 UK- and Ireland-based private investors buy over $100 million worth of properties in this city in the last four years. It is a growing trend. Shanghai Vision (London) property sales in Shanghai tripled in 2005, more than half of these being bought by investors who already own property there.
Why Shanghai?
So what’s the attraction? Property value growth rates have been between 15 and 25 per cent, another ten per cent plus through the improving value of the Chinese currency, buoyant rental markets and guaranteed yields of up to eight per cent for five years.
This has been spurred by the Chinese economy, with a GDP that has averaged 9.5 per cent for over a quarter of a century. China has the world’s fastest growing economy and Shanghai is its fastest growing city. The AT Kearney Foreign Direct Investment (FDI) Confidence Index says that China is the number one most attractive FDI destination in the world.
International corporations such as CitiBank, General Motors and Philips are relocating their Asia-Pacific headquarters from Hong Kong to Shanghai. According to Jones Lang LaSalle, investment by overseas institutions in Chinese real estate will triple in 2006 alone, with the Duke of Westminster rumoured to be investing millions of pounds there.
All this investment creates demand for more labour in cities such as Shanghai. US giant GE Real Estate, which is expected to invest up to $500 million in China in the next three to five years, has forecast that in China 400 million people will move from the countryside into the cities in the next ten years. The population of Shanghai alone increased by 500,000 in 2005.
With expansion comes the need for homes. Yet, with an average two-bed apartment starting at £80,000, property prices are still a fraction of other world financial cities such as Tokyo, New York and Hong Kong so large capital growth can be achieved.
All this has generated massive interest and investment in the residential market in recent years from all over the world. In fact, the growth was so rampant that the Chinese government, fearing that it would accelerate out of control and crash, introduced ‘cooling measures’ last year to slow it slightly and deter short-term profiteering. They reduced the loan-to-value of mortgages from 70 to 60 per cent and interest up from 5.5 to 6.12 per cent. They doubled the deed tax from 1.5 to three per cent and introduced a new tax of five per cent on properties sold within two years of purchase.
Despite this, investors gained a good return from their property, generally between ten and 15 per cent. In addition, following the revaluation of the currency last summer, their property increased in value by ten per cent purely from the currency appreciation.
Promising prospects
Prospects for 2006 are promising. Dominic Keogh says, ‘Investors are showing keen interest in long-term opportunities. New foreign investment continues and, in particular, the new World Financial Centre bringing in bankers is creating strong interests in properties such as Times Square in the neighbouring Pudong area – Shanghai’s ‘City’ where its stock exchange and banks are already based. Overseas rental clients are very keen as they move their Asian offices to Shanghai
‘There is also strong interest in the market from those with an eye for currency opportunities. According to Citigroup forecasts, the currency is still undervalued by around 25 per cent – buying property is the best way to capitalise upon this.’
For a free copy of A Buyer’s Guide to Shanghai Residential Property call Dominic Keogh on 020 7038 1265 or e-mail dominickeogh@shanghaivision.com or visit shanghaiinvestment.co.uk.