Shanghai is still a Real Estate Investment Favorite

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

September 2007

Why? Apart from personal bias, some of the other reasons are as follows: 

A)    (Part of) China has to upgrade its nature of economy = from a blood and sweat perspiration mode of economic production to a more value enhancing (and thus better profit prospects) mode of economic production, and in some ways, this is already happening e.g. news saying coastal regions are becoming expensive for say garment or toy manufacturing, and not only in terms of labor costs but also land prices. From another angle, this economic production upgrade is not just a desired goal, but is a required one to sustain China・s development, i.e. China can no longer afford to just stay in the perspiration production mode owing in part to demographics.  

B)    This means improvements in quality = not only of goods but also of services. Coupled this with a better educated population with higher income (potentials) in the coastal regions, in addition to the fact that quite a few (certainly not all or even the majority yet appears numerous enough) young people may now inherit assets from 2 parents + 4 grandparents which in turn implies not only do they have better freedom to choose their .career・ paths, they are also accustomed to better quality goods, services, and lifestyles, at least in the material sense [Read a previous article on the latter = http://www.real-estate-tech.com/articles/SRS040702.htm], quality improvements are required to help sustain and / or expand one・s market share, failing which would imply eventual demise.  

C)    Such economic and quality upgrades require .efficient・ cities to bring about and complement such improvements = cities come in various scales, natures, stages of development, and so on. The issue is not so much whether a city is world-class, regional, local, financial, industrial, or the like, but whether it is a competitive one within a certain category which in turn means attaining at least some form of relatively competitive strength.   

D)    Some cities will win and some will lose = reportedly there are some 667 urban areas (ranging from huge metropolitans to small village-towns) in China yet to an investor, this is not very meaningful. Have you ever seen an American or foreign investor putting real estate investment chips on hundreds of cities in the USA? And there is no need to spread oneself thin to win big, especially if one is not as endowed in $ as the most resourceful investment institutions. Selecting a few good ones would suffice. Also, notwithstanding China・s population, your humble author expects in the foreseeable future to see, Hong Kong excluded, no more than 1 global (financial?) center, 3 or so worldly-regional centers, and say around 6 very important regional-local centers. Most of the 667 urban areas can produce some results in the beginning, yet as the race goes on, there will be a sieving process.  

E)     (Future) China・s financial center = Shanghai? Your humble author thinks so with a high personal bias. There are reasons yet interested readers may refer to this article http://www.real-estate-tech.com/articles/ret3Q07.pdf . In a nutshell, Shanghai, despite all deficiencies and disadvantages, is still one of the most competitive metropolitans in the Mainland and one advantage Shanghai has is the stock exchange. Few if any financial centers go without a stock exchange. It also will take some while and it does not automatically spell any doom for Hong Kong.  

For investors who do not have any particular location preferences as far as China real estate investment is concerned and / or is bewildered by the many choices, consider (focusing on) Shanghai. And treat your humble author to a nice dinner 10 years later when returns are made.

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