PRIME residential property in China has the potential to provide huge gains to investors, especially in cities like Shanghai and Guangzhou, while commercial real estate in Beijing demonstrates sustained growth in value, according to the recently released 2013 Wealth Report by Knight Frank.
Policies aimed at cooling the residential property markets in major cities have led to a marked difference between growth rates in Beijing, where policy controls have been the tightest, and those in other tier-one cities such as Shanghai and Guangzhou.
Investors seeking speedy capital gains should consider these cities and other major real estate markets in China, which grew significantly faster: Shanghai at 10.8 percent and Guangzhou at 12.5 percent, compared with Beijing's 2.3 percent growth year-on-year.
Prime real estate in Upper East Side, a centrally located prime development near Beijing's CBD, for example, has registered a 3-percent growth in value from a year ago, whereas a similar property, One Park Avenue in Shanghai, rose 10 percent in value during the same period. In fact, prime property in Shanghai now ranks among some of the most expensive in the world, in 10th place, according to Knight Frank.
Further gains for prime property values in Shanghai and Guangzhou should be expected amid continuously robust demand as these two markets are targets for investment from other areas in China, the report said.
Beijing, however, has seen a very different scenario in the commercial real estate market.
In Beijing, commercial real estate rose 23 percent in value in 2012, a full 20 percent more than in Shanghai in the same period, since investors have been exploring commercial property to continue to benefit from rising land values, according to research.
"Beijing's growth in this sector has been phenomenal, and we expect this to persist as long as restrictions on residential real estate continue while supply remains relatively constant," said Nick Cao, head of investments and capital markets at Knight Frank China.
"Shanghai, in contrast, will likely see its low growth maintained with a large number of mixed-use developments, including retail and office, set to come online this year."
Knight Frank's research also predicts high potential for growth in lower-tier cities as many developments enter these markets.
Following infrastructure and economic pushes by local governments, many lower-tier cities are developing potentially lucrative commercial property markets with acceleration in both demand and supply; mixed-use developments are expected to come onto the market in the near term.
For lower-tier cities, retail is one good option to consider since demand from local consumers is quite strong, while many cities' comparative focus on manufacturing and the industrial sector pushes down the value of office and hotel space, according to Cao.