Shanghai eases
land restrictions for
foreigners By Olivia Chung
HONG KONG - Concerned about a slowdown of
contracted foreign investment, the Shanghai
municipal government has eased restrictions to
lure foreigners to invest in property development
again, in a reversal of an earlier policy aimed at
cooling down the real-estate sector.
The
Shanghai municipal housing and land resources
administration said in a recent land auction
notice, the first this year in the city, that
foreign nationals, corporations and
organizations are all
qualified to participate in land bids. The notice
also says deposits for land bidding can be paid
with yuan, US dollars, Hong Kong dollars, Japanese
yen or euros.
Up to now, Shanghai has
followed the central government's guidelines to
allow only officially registered foreign-invested
firms that have operated in mainland China for at
least one year to bid on land lots. And deposit
payment has been required in yuan.
Beijing's guidelines were introduced last
July, when six ministries imposed restrictions on
foreign investment in real estate amid mounting
criticism that foreign capital was the culprit
behind overheating in the property market.
An expert said the guidelines have made it
difficult for foreign investors, particularly
starters and those who do not have access to large
amounts of funds in China, to purchase land lots.
"Some foreign investors have to partner
with domestic developers to acquire land," said
Clement Luk, director and assistant general
manager of Centaline (China) Property Consultants.
He said he expects that the latest
Shanghai policy change will benefit foreign
investors who want to enter the city's real-estate
market.
However, Chen Sheng, vice director
of the East China Academy of the China Index
Research Institute, said the city's relaxation of
rules on foreign investors buying land has nothing
to do with easing restrictions on overseas
property developers.
"The city purely
offers convenience to foreign developers in buying
land. Successful land bidders still need approval
from the state Administration of Foreign Exchange
for payment," he said.
The relaxation came
as foreign investment in Shanghai's property
market plunged in the first four months of this
year despite such investment continuing to rise
significantly nationally.
Shanghai
approved 32 foreign-invested property-development
projects, worth US$690 million in contracted
foreign capital, between January and April, a
decline of 42.23% from the same period last year,
according to the municipal statistics bureau.
Meanwhile, according to the National Development
and Reform Commission (NDRC), foreign companies
pumped 13.13 billion yuan ($1.7 billion) into the
country's real-estate sector in the first quarter,
a rise of 154.4% from last year.
Shanghai's property market also showed
signs of cooling down in January-April, although
housing prices in all other major Chinese cities
continued to grow significantly. The average
property price in Shanghai fell 3% in the first
quarter, compared with a 9% increase in the same
period last year.
Property prices in
Beijing increased 9.9% in the first quarter,
according to the NDRC.
Luk attributed the
decline in foreign investment in Shanghai property
to a significant increase in land and housing
prices as Shanghai, along with Beijing, have been
the most popular cities among foreign investors.
He said Shanghai's policy change is good for
developing a healthy property market and many
foreign concerns are still looking for investment
opportunities in the city but waiting for the
right time.
However, one thing for sure is
that second- and third-tier cities in China are
attracting foreign developers and investors, he
said.
Global property consultancy Knight
Frank said in its latest market report that
foreign developers have been increasingly shifting
their attention toward second-tier cities given
the surging land prices and lack of urban land
sites in first-tier cities.
Of the 29 site
transactions involving foreign investment
identified by Knight Frank during the first three
months of 2007, 14 were in second-tier cities.
Among the 287 cities in China, Knight
Frank has identified 57 with a population of more
than a million and per capita gross domestic
product (GDP) above $3,000. Of those 57 cities, 14
are in the Yangtze Delta, nine in Guangdong
province and six in Shandong province.
In
some underdeveloped provinces, it is usually only
the provincial capitals that have achieved the
$3,000 per capita GDP threshold. Examples include
Taiyuan in Shanxi province, Nanchang in Jangxi and
Changsha in Hunan.
But some cities in
inland China, even with rather low per capita
income levels, have attracted the interest of
foreign developers. For instance, Chongqing's
prospect as an economic hub in western and central
China appears bright, with a population level of
more than 30 million and its designation as a core
city by the central government under the Western
China Development Strategy. Another example is
Guiyang city in Guizhou province, where Hong
Kong's New World Group has recently acquired a
1.67-million-square-meter site.
Knight
Frank said the residential sector will continue to
be the focus of foreign developers' interest in
second-tier cities as rapid urbanization there
should translate into steady demand for
residential units.
The office sector has
not attracted much interest from foreign
developers in second-tier cities as most
enterprises cannot afford to buy or rent Grade A
offices, nor do they need the large floor area
offered by such offices, it said.
But
foreign developers are interested in developing
prime retail properties in second-tier cities as
quality retail space in prime locations is
expected to enjoy strong capital appreciation on
the back of surging purchasing power and
liberalization of restrictions on foreign
retailers entering the country.
Jones Lang
LaSalle, an international property-services
provider, said in its latest research report that
rising prices and increased competition in
first-tier cities are encouraging real-estate
investors to consider cheaper and potentially more
rewarding markets in second-tier cities.
A
sizable part of foreign capital has targeted such
cities, as the proportion of total transactions
increased from 38% in 2004 to more than 57% last
year, the Jones Lang LaSalle report said.
Moreover, western and central China is
growing faster - more than 38% last year, compared
with 23% in the coastal regions.
Singapore's CapitaLand has expanded
rapidly into cities such as Ningbo, Hangzhou,
Chongqing and Chengdu. It now manages 28 malls
across China through a joint venture with Shenzhen
International Trust and Investment Co.
Merrill Lynch has invested $30 million in
a residential project in Nanjing.
Hong
Kong-listed Hang Lung Properties committed to
commercial property projects in Shenyang,
Changsha, Tianjin, Jinan and Wuxi with spending
exceeding 20 billion yuan.
Hutchison
Whampoa, controlled by Hong Kong tycoon Li
Ka-shing, has invested $5 billion in mainland
China in the past two years and its land reserves
are spread across Chengdu, Chongqing, Xian, Wuhan,
Tianjin and Changsha.
Olivia
Chung is a senior Asia Times Online
reporter.
(Copyright 2007 Asia Times
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