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Developer buys key Shanghai tract

By Ma Zhenhuan (China Daily)
Updated: 2009-02-13 14:25

Cynics called it bottom fishing. But most real estate analysts considered Shanghai New Huangpu's 224-million-yuan ($32.75 million) acquisition of the development rights of a choice tract of land on the bund a shot in the arm for the depressed Shanghai property market.

Special Coverage: Housing in China Related readings:  Real estate funds turn to China  Real estate companies report poor performance in 2008  Real estate bubble set to burst

The company, one of the city's largest property developers, yesterday said it has agreed to buy a 55-percent stake in Shanghai Hongtai, whose major asset is a plot of land in the bund's northern section earmarked for office development.

Analysts said the transaction indicates the company's renewed confidence in the future of the city's property sector.

North Bund, a 3.66-sq-km area in Hongkou District of western Shanghai, has long been regarded as a potential central business district because of its unique position. It is located at the conjunction of the Huangpu River and Suzhou Creek, facing the prosperous Lujiazui financial district across the opposite bank.

Local authorities had planned in the 11th Five-Year Plan (2006-10) to make the area a major business district and international shipping center due to its unique geographic location.

Hongtai bought the 8,910-sq-m plot at 206 million yuan in April 2007 and planned to construct the Yangtze International Finance Center, a landmark business mansion in Hongkou, with a planned office floor of 75,000 sq m.

New Huangpu yesterday said the land development of the plot, due to its scarcity and unique location, is expected to further consolidate its main business, and will bring stable income in the long term.

For the upcoming Shanghai Expo in 2010, high-grade offices and a yachting harbor will be built alongside the Huangpu River, adding to the area's real estate value.

Lu Qilin, vice-director of Shanghai-based Uwin Real Estate Research Center, said yesterday it's a good bargain for New Huangpu, as the real estate sector remains sluggish and developers face mounting pressure for funds.

He said now may be a good time for capital-abundant real estate companies like New Huangpu to acquire plots from smaller developers, who are willing to sell off their lands at a reasonable profit ratio.

Remy Chan, head of China Business Development at Jones Lang LaSalle (JSL), said yesterday that more such deals may follow suit in the latter half of the year, considering the continuous drop in both the rent and occupancy rates in Grade-A office market in Shanghai.

A report from JSL shows that in the fourth quarter of 2008, the average rental fee for Grade-A buildings in Shanghai registered a sharp slide of 10 percent, with those in the Pudong area dropping by an average of 15.5 percent.

The vacancy rate for office buildings in Shanghai reached 13 percent in fourth quarter, with those in Pudong dropping further to 22 percent.

Chan expects a further slide for rentals, coupled with a higher vacancy rate, for Shanghai's office rental market throughout 2009.

However, he said he would expect New Huangpu to gain a high return in this investment project, taking into account the relatively low cost in acquiring the plot.

State-owned New Huangpu, founded in 1992, is among the first batch of real estate companies listed on the Shanghai Stock Exchange.

Boosted by the news, shares of New Huangpu rose sharply by 6.51 percent to close at 12.93 yuan.