Investors in luxury residential real estate should look to Beijing and Shanghai, where prices should ultimately rival those in capitals such as London or New York, argues a 24-year veteran of Asia’s property markets.
Investment from Asia’s wealthy has been rising fast into cities such as London, New York and Paris in recent years. But it may be time to look closer to home, particularly in China, said Frank Marriott, Asia-Pacific head of real estate capital markets at property services firm Savills.
Average luxury residential capital values per square foot range widely between international centres, with Hong Kong way out in front at $3,200, followed by London (around $2,350), Paris ($1,450) and Singapore (around $1,200). Shanghai comes in at a relatively low $600.
“Hong Kong is four times and Singapore double the price of Shanghai [per square foot of luxury residential property]. Instead of always looking at London, you should perhaps look at China, particularly parts of Shanghai," said Marriott, addressing the Family Office Solutions Showcase last week in Hong Kong.
Of course, Shanghai’s luxury residential rents are lower than in certain cities. By Savills estimates, the city’s average figure of $600 per week is little more than a third of that in London ($1,750) and less than half that in Hong Kong ($1,320).
Moreover, there are issues for foreigners around accessing Chinese real estate, noted Marriott, such as the need to set up a wholly foreign-owned entity.
And a long-term view is required: “You have to have to have at least a 10-year horizon mentality to buy [in China], five is not enough,” he said. “But if you buy in a prime location, you cannot fail.”
Still, London for now remains the number-one destination for Asian investment into real estate. And capital is moving out of Asia into foreign real estate faster than it is entering the region’s property market.
Last year $22.4 billion of capital flowed into Asia-Pacific property, while $37.4 billion moved out of the region into overseas real estate, according to Real Capital Analytics. That trend has reversed since 2007, when $44 billion entered Asia Pacific and $28 billion flowed out, and this trend is set to continue, given the region’s fast growing wealth.
This trend is a more recent one when it comes to China – it is only this year that outbound direct investment (ODI) from the mainland is tipped to overtake inbound foreign direct investment (FDI).
China FDI was forecast to be $125 billion and ODI $113 billion for 2014, according to the United Nation Conference on Trade and Development. That is up there was $123 billion of FDI and $100 billion of ODI, up from $73 billion and $21 billion in 2006.