Shanghai offices nudge Hong Kong prices

An increasing number of foreign real estate funds and state-owned enterprises - the heavy-hitters in the investment property sales market - are channelling their capital into investment properties in Shanghai.

Their buying is driving up prices and compressing the annual investment yield to a level close to Hong Kong's.

Flush with liquidity, two overseas funds are in talks to buy two prime office buildings - Cross Tower and Central Plaza - involving a total value of 5 billion yuan (HK$6.32 billion), say people familiar with the deals.

The owners of Cross Tower, in Huangpu district near the Bund, are in the advanced stage of negotiations with a Hong Kong-based real estate fund over the acquisition of the 24-storey office building for 1.8 billion yuan, up from a previously reported 1.67 billion yuan, sources said.

"With this price tag, the annual investment yield will compress to just 4 per cent a year, compared to the average 6 to 7 per cent that most funds are looking for with acquisitions," said one of the sources.

"It is very close to the 2 to 3 per cent annual yield seen in Hong Kong. In other words, Shanghai's office prices are now becoming as expensive as those in Hong Kong."

Gaw Capital Partners co-founder Goodwin Gaw said the fund was in talks to buy Cross Tower. He declined to elaborate.