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News release

Shanghai

China’s Real Estate Market Fast Tracking to Maturity after Decade of Rapid Transformation

Jones Lang LaSalle releases latest white paper on Beijing and Shanghai’s ascent up the property market maturity curve


SHANGHAI, 27 September 2010 – While many analysts maintain that China’s economy should still be categorized as “emerging”, Jones Lang LaSalle, the world’s leading real estate services firm, indicates the property market in Shanghai and Beijing has quickly advanced to maturity status in its latest whitepaper “China’s Property Market - Fast Tracking to Maturity”.

Mr Colin Dyer, President and Chief Executive Officer of Jones Lang LaSalle says, “Ten years ago, Shanghai and Beijing ranked 14th and 15th – firmly in our definition of ‘emerging’ or Gamma real estate markets, alongside other key BRIC markets such as São Paulo, Moscow and Mumbai. Their distance from Alpha cities – London, New York, Sydney, Hong Kong and Singapore – was notable. Today, both cities have risen to the Beta or transitional market category and have leapfrogged cities like Moscow, Mexico City, Mumbai and São Paulo on the overall maturity score – to hold 10th and 11th positions in the global ranking.”

This report also assesses China’s real estate market using four key criteria which, according to Jones Lang LaSalle, constitute a ‘mature property market’, and highlights areas that still require further development to ensure it reaches full growth:

Connectivity with international capital market: The country’s connectivity with international real estate capital markets is a leading factor in the maturity curve. That Shanghai and Beijing feature among the world’s most liquid markets has largely been achieved on the back of domestic investor activity, with only US$17 billion of direct commercial real estate investment coming from overseas during the last three years. “For many international investors the risk of doing business in China is still too great. How much China really wants inward investment will influence what happens next”, notes Mr. Dyer. The white paper also states that the role of international capital markets in China’s real estate market will be one of fostering increases in market discipline, sophistication and risk management through partnering and knowledge transfer, while China’s role in international property markets could become a market-moving and game changing force.

Market transparency: Although starting from a low base, China’s Tier II and Tier III cities have shown amongst the greatest progress in transparency over the past two years. The report states that China could greatly benefit from further improvements in this area through initiatives such as developing an active REIT sector, creating robust investment performance benchmarks and improving transparency of real estate occupation costs. According to Mr. K. K. Fung, Managing Director for Jones Lang LaSalle Greater China, “Greater transparency will help improve market efficiency, encourage stable long-term investment and equip China’s domestic players to compete in international real estate markets. However, the more urgent requirements of growth and physical development are likely to take priority in the short to medium term.”

Green building agenda: Opportunities for further advancement in stock quality are immense, with a projected additional 45 million square meters of Grade A offices, around 100 million square meters of modern retail and 40 million square meters of modern warehousing by 2020. Delivering best-in-class buildings with a particular focus on an ambitious “green” building agenda will not only support the government’s emission and energy targets but will significantly help to improve the attractiveness and reduce the operating costs of individual assets.

Corporate base: Shanghai and Beijing already have a substantial corporate base with virtually every major MNC now represented, as well as an ever growing presence of emerging Chinese corporations. As the hubs of the world’s second largest economy in the fastest growing region of the world, the potential for Shanghai and Beijing to rise further up the global business hierarchy is enormous. “Shanghai and Beijing will ‘matter’ as cities regardless of what happens in the rest of the world because of the significance of their roles in China”, Mr. Dyer explains. “However, both cities will need to work on their competitive profile as aspiring Alpha cities, which may require selective policy review to encourage ease of doing business.”

In reviewing China’s maturity profile, the report also questions how much of the somewhat ‘western-centric’ definition of maturity is actually important and relevant to its market. China’s ascent up the real estate market maturity curve owes much to its unique combination of massive infrastructure investment, highly effective government policies, long-term planning, impressive speed of real estate delivery and a vibrant domestic economy. These attributes will continue to shape China’s real estate market, creating a unique model that will be closely watched by many emerging markets across the globe.