Shanghai’s real estate market is anticipated to slow down drastically in 2008, becoming more vulnerable to government policy shifts and attract less investment. This is according to several of the larger real estate analysts.
According to a Jones Lang LaSalle report released recently, after the government implemented the land appreciation tax and imposed additional restrictions on foreign investment in the sector, real estate investment saw a slowdown in the fourth quarter of 2007 and there was only one sizable sale completed in the city.
The report also suggest that overseas investors will be shifting their focus away from the top tier cities in favor of smaller cites which offer less restrictions on foreign investment, such as Hangzhou and Chongging.
Grade A offices and serviced apartments will continue to attract foreign investment capital, but limited availability will see emerging regions begin to attract more interest as the year progresses.
Lee Hingyin, director of Research & Consultancy at Colliers International (Shanghai) said, “Increasing monetary control and tightening policies are bringing more uncertainties, particularly to the investment market.”
“The investment market may feel the pinch, and it is likely that foreign investors will be more vulnerable to these policy changes this year.” Lee added that he expects more severe measures, which will significantly cool down overseas investment in Shanghai.
Not wishing to contribute to the slow down, James MacDonald, senior manager of Research at Savills, China, said: “In the institutional investment market, it’s not necessary that new policies will be introduced and will affect the market in a big way. Instead, it is the more stringent implementation of previous regulations that has to be watched.”
Chen Sheng, director of the China Index Academy, which tracks property prices, said, “The government’s tighter monetary policy this year is expected to have a negative impact on the real estate investment market, which is highly dependent on bank loans.”
Wang Qing, an economist at Morgan Stanley Asia Ltd, said in another report that sectors with a high debt-asset ratio, such as real estate, tend to experience larger declines in fixed-asset investment growth after credit tightening. The debt-asset ratio of the real estate sector is over 70%.
Liu Shiyu, deputy governor of the People’s Bank of China, said the government will strengthen commercial real estate management and adjust the real estate credit structure to prevent risk.
A survey was conducted by the State Administration for Industry and Commerce in December on foreign investment in China’s real estate sector. The move came on the heels of the Ministry of Construction opening a research meeting on the implementation of existing policies restricting foreign investment in real estate.
Overseas banks are also beginning to shy away from investments in the region and as credit tightening increases, investor enthusiasm will be further reduced, said Savills.
Shanghai is the eighth largest city in the world, and the largest city in China, leading China’s new economic growth since the lessening on restrictions on foreign investments. As with all emerging markets, environmental issues and an increasing wealth gap remain a problem to be dealt with.