Bulk property investment in Shanghai falls 14%

Bulk investment in Shanghai's property market in the first half of 2014 slumped 14 percent from the same period in 2013 and may shrink by a further 50 percent by year's end amid narrowing profit margins, a new report says.

The study by property service provider DTZ, released on Wednesday, said that bulk trading investment in the city totaled 15.7 billion yuan ($2.55 billion) in the first half of the year, a drop from a record 18.3 billion yuan in the first half of 2013.

Combined bulk trading may fall sharply and reach only half of that figure by the second half, said Jimmy Yip, managing director of investment and advisory services at DTZ China.

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"Although the drop in the first half of 2014 did not seem significant, considering that few sales are in negotiation, that signals an even cooler market in the next half of this year," Yip said.

In 2013, Shanghai's real estate investment totaled 57.1 billion yuan, an all-time high.

But the average yield of office buildings dropped to an all-time low of 5 percent, while average lending rates reached some 6 percent.

Slowing yield growth amid tight credit and falling supplies following the active transactions of the past few years have contributed to investors' retreat from Shanghai, Yip said.

Beijing also saw a sizable 31 percent year-on-year decrease in bulk investment tallies from the 16.21 billion yuan sold in the first half of 2013 to 11.26 billion yuan in 2014.

Foreign investment slumped as domestic capital supported market demand.

According to DTZ data, overseas investment in the first half of 2014 fell by 9 percent compared with the first half of 2013.

Chinese investors, on the other hand, boosted investment by 34 percent year-on-year in the first half of 2014.

In terms of investments, office buildings remained the most popular category, accounting for about 57 percent of all real estate investment.

Yip predicts that domestic capital will dominate bulk trading in Shanghai and that more private equity will enter the investment property market.

In Beijing, a key transaction in 2014 was the 5.7 billion yuan sale of Pacific Century Place to Hong Kong's Gaw Capital, the largest single asset deal by an overseas private equity company in China.

Mature projects with high yield should become major investment bids in the future, Yip said.

"Domestic capital has increasingly entered overseas property markets, including London, and purchased landmark projects for high yields. This trend shows China's investors are now eyeing yields instead of growth, which will affect China's domestic investment market, making yield-focused projects more popular," he said.