Property investment firm Treasury China Trust bought the Huai Hai Mall in Shanghai earlier this month, a building replete with three stories of Chinese restaurants that doesn't appear to be anything special. 

In fact, TCT chief executive Richard David labels it Shanghai’s ‘worst property on its best street' and currently his favourite asset in the firm's portfolio.

Directly opposite the mall lies a cornucopia of posh foreign-brand merchants selling the likes of Cartier, Chanel and Zegna to cashed-up Chinese, so his intention ultimately is to have similarly upmarket retailers renting there. Achieving that aim will involve re-vamping the interior.

TCT bought the property for $90 million, but believes its true value is closer to $120 million. Real-estate adviser DTZ puts the market rent at Rmb35.6 per square metre per day, but that figure is projected to rise to Rmb64 by 2014, once the renovations and re-leasing are complete.

The new acquisition joins other core Shanghai properties in TCT's asset portfolio, principally City Center, Central Plaza and the Treasury Building.

“I still don’t see signs of a bubble in the broader Chinese property market,” says David. “That’s mainly because I don’t perceive any significant catalyst that will prevent people from continuing to invest in property. It isn’t valid to assume there is a bubble simply because a factory worker living in inland China cannot afford a high-end flat in Shanghai.”

He notes that with banks subject to more restrictive lending quotas and striving to abide by lending targets, the property-lending environment has become tighter. But TCT, which borrows in both dollars and renminbi, has not had any problems raising loan finance from its Chinese lending counterparties.

The firm announced earlier this week that its first-half 2011 net profit after tax was $120 million, having risen from $33 million in the same period last year, due to improved revenues and better rental receipts.

TCT's net asset value per share rose to $3.46, which is an 11% increase since the first quarter. That means the Singapore-traded company is now priced at around a 50% discount to NAV, and reducing that discount is a top priority for management.