Start thinking of investing in fast-growing cities on the mainland, the experts advise Location, location, location - that, we all know, is the golden rule in property speculation. Potential buyers have absorbed this essential principle, and are eager to act on it, but they are also asking basic questions such as: What is a good location? Where does one go to buy? The experts are reassuring Hong Kong investors that the city they live in will see a pick-up in property prices next year after a six-year slump, thanks to a strengthening economy. Opportunities to make good buys will emerge in the next 12 months, they say. But is Hong Kong the only choice? Many property consultants familiar with mainland markets are saying China is the place to buy. They advise investing in property in big mainland cities, considering China's gross domestic product of 7 to 8 per cent a year. Michael Choi Ngai-min, chairman of Land Power International, said three factors should determine the decision to buy: rental yield, capital appreciation potential and investment risk. Following the property slump, prices in Hong Kong had bottomed and the risk of losing money in an investment was low, he said. Those looking for rental yield and capital appreciation potential should consider the fast-growing mainland cities, he added. 'Shanghai is likely to top Hong Kong and other mainland cities as the most attractive place to buy, based on these factors,' Mr Choi said. Investors in Shanghai properties can expect a rental yield of 8 per cent a year, while an annual double-digit growth in capital values of property prices is expected. Mr Choi said the investment risk was low because of strong demand and the municipal government's determination to regulate the industry. Rental yields on Shanghai properties compared well with the 4 per cent to 6 per cent level achieved in Hong Kong, where capital value appreciation is tipped at below 10 per cent annually in the long run. In Beijing, the rental return is more than 10 per cent a year, but prices softened last year and are expected to drop further, realtors said. Beijing developers went into a construction frenzy when the government ordered developers to complete their projects by 2006, as part of the effort to tidy up the city before the Olympic Games in 2008. An oversupply of flats is expected in the next two years as a result. Mr Choi said there was a general perception that Shanghai would evolve into a key international city, helped by China's accession to the World Trade Organisation and a booming economy. The Shanghai economy was expected to grow 11 per cent this year, a slight improvement on last year's 10.9 per cent. In comparison, growth in Hong Kong and Beijing was an estimated 3 per cent and 10 per cent respectively. 'Shanghai prices are dirt cheap compared with prices in other international cities such as New York, London and Hong Kong,' Mr Choi said. 'Shanghai prices are a fifth of Hong Kong prices.' Luxury home prices in Shanghai have risen 30 per cent in the past 12 months. In the last quarter, they rose 10 per cent. Randall Hall, executive managing director, Greater China, at FPDSavills, cast a vote of confidence in the Shanghai property market, citing its good infrastructure and the strong support shown by the city government. 'The Shanghai market is seeing an enormous take-up,' hesaid. 'Wealthy and overseas Chinese still want to buy. When you look at 30,000 yuan per square metre for a Shanghai apartment, which in Hong Kong is the same as $2,700 per square foot, you will find property still affordable,' he said. There are more than 100,000 Taiwanese and 50,000 Hong Kong people living in Shanghai, and all are potential property buyers. Mr Hall, who is considering buying a $5 million villa in the city, said he could see no signs of overheating in the market. 'In China, historical data is quite irrelevant because so many industries are coming into the country following the country's WTO accession,' he said. 'It isn't like the mature markets of Hong Kong, London and New York, where it is easy to predict how many people will come to buy a house or take office space.' Investors considering the various types of properties should look at strata-title office space, said Mr Hall. He expected sales activity in office space to quicken as the economy continued to improve and demand grew. Meanwhile, Centaline Property Agency chairman Shih Wing-ching was optimistic about the Hong Kong market and hoped investors felt the same. 'Home prices will see a 15 to 20 per cent surge next year, in anticipation of an improved economy,' he said. 'The market had fallen to the bottom and is now ready to recover. The turning point will result in a rebound in prices, giving investors more opportunities for big profits.' Mr Shih did not recommend investing in cities that are unfamiliar. 'If you want to invest in China, you should live there for five years [to better understand the political and social environment]. Otherwise, you will be at the mercy of the estate agents there.' Realtors said resources were the deciding factor for many buyers. 'If you have only $1.5 million to $2 million, you could find a flat in a decentralised area, such as the New Territories, where there is slow growth potential in capital values,' Mr Choi said. 'With the same amount of money you can buy a decent flat in prime locations in Shanghai, such as the Changning and Xuhui districts, and expect a high capital appreciation.' Another area to invest in is Shenzhen, in the Lowu and Futian districts, where prices are 60 per cent of those in Shanghai, said Mr Choi. He pointed out that the city would gain from Hong Kong's gradual integration with the Pearl River Delta. In the long run, realtors said, the liberalisation of the yuan would not result in an increase in interest rates, and the real estate markets would remain stable.