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Foreign fund investors high on city real estate
By Cherry Cao

SHANGHAI ranks second in the Asia Pacific region for real estate investment prospects and fourth for development outlook, suggesting a positive outlook in 2013, a joint industry survey shows.

The city's office and retail markets, in particular, have proved mainstays for foreign funds seeking investment in Chinese real estate, according to a joint report released recently by the Urban Land Institute and PricewaterhouseCoopers LLP. They collated the opinions of more than 400 real estate professionals, including investors, fund managers, developers, property company representatives, lenders, brokers and consultants.

Both sectors received high ratings in the Emerging Trends in Real Estate Asia Pacific 2013 Report, reflecting the city's relatively user-friendly business environment, growing volume of institutional-grade properties and historic market performance.

However, despite its strong ranking, Shanghai has lost some of its appeal to foreign investors, mainly because of relatively high property prices, a somewhat saturated market as well as a less open regulatory environment for foreign investors.

Therefore, while the city will remain firmly on the radar of foreign funds with a mandate to invest in China, activity in Shanghai will remain muted for the short term, the report predicts.

For the Asia Pacific as a whole, steady economic growth, rising incomes and stable or increasing property values all contribute to an overall sense of optimism, though the outlook is also tempered by growing concerns among investors that prime assets in key real estate markets are becoming overpriced.

As a result, some international investors are looking at frontier markets such as Indonesia, while others are revisiting often-overlooked capitals such as Kuala Lumpur and Bangkok. Secondary markets such as Kowloon in Hong Kong and second-tier Chinese cities, meanwhile, are also experiencing increased interest from international buyers, the report finds.

"China's secondary cities are top-ranked in the survey's ratings for Asian industrial and distribution projects, with almost half of those surveyed recommending acquisitions there," says K.K. So, PwC's Asia Pacific Real Estate Tax leader. "For retail properties, Shanghai and China's secondary cities also feature strongly, again as witness to the rise of the mainland consumer and a government policy favoring consumer-led economic growth over the old model relying on infrastructure construction."

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