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Shifting into high gear

Beijing?s residential property market is soaring as people queue up to buy houses and apartments in the Chinese capital.

It?s still the early days, but buying in Beijing already has become a question of balancing risk and reward. But analysts say the outlook for the capital?s real estate market is positive, and plenty of opportunity remains.

Consider the case of one buyer who works for a foreign NGO. This person made a down-payment on a property at the luxurious Central Park development, and within the week had been offered a 15 per cent premium on the price. Not a bad return.

The flip side is that buying a property in Beijing isn?t as simple as choosing the one you like and making an offer somewhat below the listed price. Investors are lining up to buy, and many properties will be sold out by the time you arrive at the location ? never mind viewing the property or making an offer. If you want to buy, be ready to pay a bit more than the listed price. Those who have done so, and those trying to do so, clearly believe it?s worth it.

?The reward of buying residential real estate in Beijing is that you have a property in the capital of the world?s most populous country. The prospects are bright and there is always demand for quality projects,? said Anna Kalifa, senior manager of research at Jones Lang LaSalle in Beijing.

Shanghai is never far from the lips of investors and developers in Beijing. Fears of a bubble in booming Shanghai have people urging caution in the capital. But Janet Au, a consultant at Debenham Tie Leung, says the combination of strong economic growth and development in the capital ahead of the 2008 Olympic Games makes for a positive outlook for Beijing?s real estate market.

?If there is a crash, it?s not going to happen until 2008. We see a strong demand in the residential market,? said Ms Au.

Beijing?s property market has suffered from shocks in the past, such as the Asian financial crisis, the global economic slowdown and Sars, which has meant there has never been sufficient momentum to shift the market into overdrive, analysts say.

?Now there?s lots of good news ? the Olympics, China as the factory of the world ? the spotlight is on China. It?s an exciting time to be here and it?s only going to get more and more exciting,? said Kelly Morris, of FPD Savills in Beijing.

With the stock markets in the doldrums, there are few enough investment options at the moment. ?Property is one of those investments that always seems good. As the saying goes, God ain?t making any more of it,? said Morris.

While the property markets in Shanghai, Shenzhen and Guangdong are still far ahead in terms of services, property management and construction and design, the quality in Beijing is improving as investors become savvier.

In addition, there is a spillover effect from Shanghai, where many developers and investors feel they missed out on the property boom, Morris said. ?Beijing is a second chance for many people to get in on the China opportunity.?

Going forward, the key to the future health of the Beijing property market is whether the market for second-hand residential property evolves. The consensus is that it will.

?The second-hand market for villas is nascent but there. It?s not there for apartments yet. But then a year ago it wasn?t really there for villas either and now villas are being listed for rent,? said Ms Kalifa.

Ms Au says the market for existing properties has been slow to develop because people still prefer to buy new. ?It?s happening slowly but it will happen, especially when apartment prices rise so high that people will have to look at the second-hand market,? she said.

FPD Savills? Morris said the second-hand market eventually will flourish because a great deal of pent-up local demand remains.

?It?s hard to forecast how quickly the secondary market in Beijing will develop. Beijing is always a couple of years behind Shanghai, it?s always a bit more subdued, and the government is always a bit more controlling. But I do see a growing secondary market, and I see a speculative market growing like in Shanghai and Guangdong,? said Morris.

Also encouraging the development of the market is the fact that big international players like Hong Kong Land and Henderson are coming to Beijing, as well as US firms like Hines.

?In the last two or three months I?ve met 13 or 14 big, significant institutional investors who are coming to Beijing with serious intention. It?s unheard of. They are finding out about the mechanics of the market and the yield expectations. They are saying we have to be in China,? said Morris.

The investment funds are looking for medium-to-long term holds, said Morris.

?To buy and hold, that?s exciting. That will drive up prices and it creates a bit of drive in the market,? said Morris.

Also making big waves in the Beijing property market are buyers from other parts of China, Hong Kong, and Taiwan, as well as overseas Chinese. Many Chinese feel they need to have a home in the capital, said Ms Au.

?Local buyers are less than 50 per cent of the total. They could even be 20 per cent or 30 per cent,? she said.

Buy low, sell high

While the Beijing property market is still less mature than Shanghai?s, prices at the upper end of the market have risen by about 15 per cent over the past year, according to some estimates.

Grade A apartments in Beijing sold for about HK$17,484 (US$2,242) per square metre in the first quarter of this year, while the average Grade A villa sold for HK$16,011 (US$2,053) per square metre.

However, the overall figures mask vast differences in prices and appreciation rates for properties in different locations and of differing qualities.

Prices rose much more steeply, for example, in the central business district and the coveted Chaoyang Park area, where many foreigners and affluent Chinese live and where most foreign investors would consider buying. Properties in these areas now sell for about HK$16,011 (US$2,053) per square metre ? the same as a Grade A villa ? up from an opening price of about HK$12,244 (US$1,570) per square metre.

Meanwhile, prices for Grade B apartments rose 6.7 per cent during the first quarter of this year to about HK$12,961 (US$1,662) per square metre, according to FPD Savills? research.

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