Shanghai Tops Investment and Development Prospects as Optimism Returns to China’s Real Estate Market

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Latest Mainland China Cities Survey launched at ULI Asia Pacific Summit

For more information contact:
Peter Walker, Urban Land Institute, London +44 207 487 9586
James Hacking, BlueCurrent Hong Kong +852 2967 8982

SHANGHAI (6 June 2013) – There has been a substantial recovery in market sentiment for Chinese real estate, with Shanghai topping the rankings for both investment and development prospects, according to the Urban Land Institute’s Mainland China Cities Survey 2013. The significant revival in market confidence is demonstrated by Shanghai, Suzhou, Beijing and Wuhan, the top four cities in this year’s report, all receiving better scores than the highest ranked city for 2012, which was Chengdu.

This improved market sentiment is underpinned by wider confidence in the Chinese economy, with respondents once again taking it as given that China’s gross domestic product growth and population size, combined with its military spending and technological investment, would make it the largest economy in the world by 2030. In addition, more investors are seeing the real estate opportunities provided by both China’s growing middle class, which already numbers 300 million people, and its younger population, which is more inclined and financially able to spend on housing and lifestyle purchases than previous generations.

“Optimism is returning to China’s real estate market. The larger cities such as Shanghai and Beijing, which demonstrate liquidity and maturity, received particularly high rankings in this year’s survey,” said ULI Chief Executive Officer Patrick L. Phillips.

The report attributes Shanghai’s return to the top of the rankings as a result of the maturity of its real estate market, which benefits from more liquidity and less volatility than almost all other Chinese cities. This is reflected in the city’s residential property prices, which remain on an upward trajectory, but are rising at a more sustainable rate than those in many other Chinese cities.

While Shanghai received the top rating, Suzhou, the second most favorable city for both investment and development prospects, rose the most in the rankings from last year, jumping 11 and 12 places respectively. As Shanghai’s largest industrial satellite, Suzhou is a vibrant city in its own right and benefits from a substantial concentration of hi-tech manufacturing. The rise of the city’s fortunes is in part due to a reassessment by investors of China’s first and second tier cities which have experienced a revival in residential sales since the second half of 2012. The report cites the SouFun-CREIS 100 Cities index, which found that residential prices in Suzhou are up by 7.3 percent in the past 12 months, but up by only 0.7 percent in the past two years. The area in which survey participants expressed caution about Suzhou pertained to its commercial market, which is generally viewed as highly competitive, and already well-supplied.

Another significant winner in this year’s report was Beijing, which rose from ninth to third place for investment prospects and from 16th to fifth for development prospects.  China’s capital and second largest city attracted particular attention from respondents for its maturing and sophisticated office sector. While the city is experiencing growing demand for Grade A office space, there is very little new supply becoming available until 2015, making it an attractive proposition to buy existing assets or develop and hold new properties. As the city’s office market matures, there is also growing demand for office space located in city fringe locations and out of town business parks, where businesses can access more affordable rents. Confidence in the city has also been buoyed by house prices, which have risen by 11.3 percent in the past 12 months.

Chengdu, which has topped the rankings for development and investment prospects for the past two years, fell to seventh and eight places respectively in this year’s report. While Chengdu’s actual scores moved only slightly, the extent of its decline in the ranking is indicative of the uplift in confidence experienced by China’s other major cities. The consensus among respondents was that Chengdu’s rapid growth over recent years has led to an oversupply of high-end office, retail and mixed-use development in the central business district. However, there was a belief that the city’s position of economic dominance in Southwest China would result in this imbalance rectifying itself over the short term, as more people and businesses move to the city.

While respondents said they have experienced increased liquidity in real estate finance markets over the past 12 months, they noted that the main beneficiaries of the improved access to capital appear to be larger developers, who have been able to expand their land banks and strengthen their position at the expense of smaller, indebted developers.

The report also highlighted respondents’ growing interest in a number of specific market sectors. Industrial properties were listed as being of particular interest, as China is currently experiencing a shortage of high-quality, modern warehouse and distribution facilities due, in part, to heightened demand resulting from e-commerce. The report cites data from the China Internet Network Information Center (CNNIC), which shows that e-commerce now accounts for 6.1 percent of all retail sales in China, with transactions rising by 66.5 percent in 2012 to RMB 1.3 trillion (US$212 billion). Despite the strong interest in the industrial/distribution sector, real estate investors are finding it difficult to capitalize on this opportunity, with existing assets and land zoned for industrial property both in short supply.

NOTE TO EDITORS AND REPORTERS: A copy of the Mainland China Cities Survey 2013 is available for download.

About the Urban Land Institute
The Urban Land Institute (uli.org) is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members worldwide representing all aspects of land use and development disciplines.

About the ULI Mainland China Cities Survey 2013
Now in its third year, the ULI Mainland China Cities Survey evaluates the real estate investment and development prospects across 36 of the largest cities in Mainland China.

 

Table 1: Investment Prospects – Top 10 Cities

  2013 Ranking 2012 Ranking Change
1 Shanghai 2 ↑1
2 Suzhou 13 ↑11
3 Beijing 9 ↑6
4 Wuhan 4 ↔0
5 Hangzhou 3 ↓2
6 Shenzhen 5 ↓1
7 Guangzhou 14 ↑7
8 Chengdu 1 ↓7
9 Nanjing 7 ↓2
10 Xi’an 17 ↑7

 

Table 2: Development Prospects – Top 10 Cities

  2013 Ranking 2012 Ranking Change
1 Shanghai 2 ↑1
2 Suzhou 14 ↑12
3 Guangzhou 17 ↑14
4 Xi’an 8 ↑4
5 Beijing 16 ↑11
6 Shenzhen 11 ↑5
7 Chengdu 1 ↓6
8 Wuhan 3 ↓5
9 Xiamen 10 ↑1
10 Zhuhai N/A N/A