Foreign investors chase mainland housing projects

ING Real Estate seeks new acquisitions after selling Shanghai residential block

In a sign of strong foreign interest in the mainland property market, ING Real Estate said yesterday the money from the sale of a block of upmarket service apartments in Shanghai would be reinvested in the country.

Property agents expect that, to capitalise on this interest, up to six real estate investment trusts with mainland properties will be issued in Hong Kong and Singapore this year, following the successful launch of the GZI Reit in December.

ING Real Estate said it had sold the 41,800 square metres, 328-unit Somerset Grand Shanghai complex in the Luwan district to Concord Land of Hong Kong, after holding it for two years.

It gave no price, but local media put it at US$100 million. A one-bedroom unit in the block on the south side of Huaihai Road, one of the city's best commercial streets, commands a rent of about 28,000 yuan a month.

The company said proceeds from the sale would go to new acquisitions in China and that the offer from Concord reflected the attractiveness of property to investors keen on the country's residential sector.

Michael Hart, head of research for Greater China (North) for Jones Lang LaSalle, said for every foreign investor that planned to sell a China property, there were probably four waiting to purchase. 'We are receiving two foreign clients a week looking for ways to spend money in China,' Mr Hart said.

'Lack of suitable properties is a key issue. Another is that most investors have not come to terms with how they will assess risk in China, putting the country just out of the comfort zone. But they know they need to come to terms with China, which is why we get so many visitors,' he added.

ING Real Estate acquired the Somerset Grand when it bought Rodamco Asia in June 2004.

Earlier this month the property investment arm of ING said it planned to set up a US$300 million fund of mainland properties, targeted at Asian, European and American institutional investors who prefer to put their money into specialised property funds instead of entering the mainland market directly.

The latest research report by Jones Lang LaSalle said the vacancy rate of Grade A office space in Shanghai would remain at below 10 per cent until at least 2009, with rents in Puxi, on the west side of the Huangpu river, reaching US$1.22 per square metre per day this year, up from 72 US cents in 2004 and 98 US cents last year.

It put rents of Grade A office space in Pudong, on the east side, at US$1.10 per square metre per day this year, up from 68 US cents in 2004 and 90 US cents last year.