Li Liang was overjoyed last week when he began to be swamped by inquiries about office rent and commercial property available for purchase in the free-trade zone (FTZ) in the Waigaoqiao area of Shanghai.
The manager of real estate brokerage Han Ju was all but certain that the "through train" cross-border stock trading plan had sparked a new round of enthusiasm about property in the FTZ.
"The clients came to sniff, as they believed the scheme was a fresh sign that the FTZ had a bright outlook," he said. "Frankly, I am not sure whether the inquiries reflected real demand."
Frank Chen, CBRE China's head of research, said office rents surged in the FTZ after it was inaugurated in late September. They peaked at 5.90 yuan (HK$7.40) per square metre a day at the beginning of this year, 180 per cent higher than the average rent before the FTZ was announced in the middle of last year, he said.
Leasing demand softened recently, and the average rent slumped to 4.40 yuan per square metre per day at the end of the first quarter, a 25 per cent drop from the peak.
"The scheme is more than a catalyst," Li said. "Those enthusiastic investors tend to believe that something concrete will happen in the zone that will attract more companies to come."
The through train, which will allow Hong Kong and mainland investors to trade designated stocks in each other's market, was announced on April 10.
Some are convinced that dramatic financial liberalisation in the zone would result.
When Beijing launched the FTZ in Shanghai last year, it pledged to use it as a testing ground for further economic reforms, including moves towards the yuan's convertibility under the capital account - in other words, when the currency is used for investment rather than trade.
The through train, which links the Shanghai and Hong Kong stock exchanges, has also heightened expectations that the Shanghai bourse will establish internationally oriented subsidiaries in the FTZ.
Global property consultants predict that the through train programme will stimulate the growth of securities and wealth management companies, generating additional office demand at prime locations in Shanghai's Pudong district.
The knock-on impact would eventually spread to the FTZ at Waigaoqiao.
"The through train deal is not FTZ-specific, meaning companies do not need an FTZ regis- tration for the business," said Chen.
"But the initiative is in line with the financial reform and the opening-up policies being piloted in the FTZ."
Envisioning the creation of a "mini-Hong Kong" at the Shanghai FTZ, investors and companies gravitated late last year to Waigaoqiao to buy or rent office space.
Today, the fanfare surrounding the FTZ has given way to concern about a property bubble there, in the absence of concrete operating guidelines from the government regarding the scope of businesses and the direction of policies in the zone.
The vacancy rate in the FTZ area has remained at a lofty 30 per cent amid an increasing supply of low-end office space, as the owners of some industrial properties turned factory buildings into office buildings, according to Han Ju.
Leasing demand in the FTZ has weakened since "multinational firms wishing to establish a presence in the FTZ have already done so", JLL said in a report.
James Macdonald, head of research at Savills China, said there had not been a significant expansion in the FTZ by non-domestic firms since it was launched six months ago.
Local real estate agents said rents and property prices at Waigaoqiao had already reached an elevated level, judging from the balance between the supply and demand.
Li said the new inquires mainly came from "speculators" who were betting on a further price rise so that they could resell or sublease the properties at a premium.
"Unfortunately, it might be too late to join the speculative spree now," Li said. "The property prices and rents have already reached an unreasonable level despite the recent drops. After all, no one knows what will really happen in the zone."
However, Peter Garrison, director of industrial investment at Colliers International Shanghai, said the impact of the through train is more nationwide and less focused on the FTZ.
"If further commodity trading liberalisation had been included in future as part of the initiative, then this would have been quite significant for the zone," he said.
Michael Klibaner, regional director and head of research, Greater China, at JLL, said the scheme is unlikely to have a big impact on the market, given the small size of the announced trading quotas.