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Shanghai calling

2010. 4 January

by Timothy Kwai
( The Shanghai World Expo, which begins in May, will surely be one of the investment highlights of 2010.

Although senior mainland officials have expressed concern about real estate bubbles, I think investors should seize the opportunity to buy Shanghai-related stocks when share prices consolidate in the first quarter.

Mainland authorities have repeatedly stated that apartments are not affordable for urban workers.

Unrest over housing could fester into social discontent and the Communist Party will be closely looking into the problems created by bubbles to stop them from creating other social problems.

When we talk about the Shanghai World Expo theme, most people would think of real estate and tourism. Let us explore the buying opportunities in these two booming sectors.

Just 20 minutes' drive from Shanghai's city center, Glorious Property (0845) has been building one of the biggest complexes in the metropolitan. Shanghai Bay, strategically located in up-and-coming Xujiahui, is becoming the city's new hub.

The Bund used to be the core of the city but since land supply is limited, the outskirts have become more prominent.

A marina for yachts is planned for nearby Longhua district while two key Metro lines will be completed by the end of 2010.

Apartments in Phase 1 of the complex, which includes seven buildings, were sold out in 2006 at an average price of 20,000 yuan (HK$22,716) to 30,000 yuan per square meter.

The remaining flats are now on sale at 80,000 yuan psm on average.

Other than apartments, the company is building a five-star hotel and shopping mall attached to the residential area.

Glorious Property's sales director showed me the extravagant showroom on the 17th floor of the sales center.

The gold-embedded door and delicate marble wall in the plushly decorated hall made me feel like I was in a palace. The sales director said the 760-sq m flat would cost approximately 100 million yuan.

Once the firm has sold all the apartments, it will start selling low-rise villas which come with a harbor view. Although there is political pressure on the selling price of real estate, land auctions seem not to have been affected. Investors might wait for further adjustments before the Lunar New Year.

I highly suspect that political intervention will be draconian if property prices in major cities still go up.

After visiting this "palace," I toured Xintiandi developed by Shui On Land (0272).

Xintiandi is not a new project. Chairman Vincent Lo Hong-sui acquired the land in the early 1990s.

The land cost was minimal but the average selling price of units in Phase 3 of Xintiandi's residential area is around 150,000 yuan psm.

But factoring in the quality and management of a Hong Kong-listed firm, and the strategic location next to Huai Hai Zhong Road, one would say the apartments are not expensive.

Looking out the window, one has a view of the historical heritage of Xintiandi's shopping area and Corporate Avenue, a core business building developed by Shui On.

Corporate Avenue is currently the most expensive landmark in Shanghai.

Its average rental rate is 10 yuan psm a day.

Shui On's Xintiandi is not simply a residential and commercial project: it has become a tourist attraction and a popular venue for countdown parties.

Hong Kong & Shanghai Hotels (0045) has just launched the soft opening of the Peninsula Hotel Shanghai.

The area used to house the Friendship Store of Shanghai.

It is also the site of the former British consulate-general, a residence for priests and a chapel, which will be converted into a dining hall during World Expo.

Opening the landmark hotel before World Expo is aimed at attracting foreign dignitaries participating in the global event.

Peninsula Hotel has a reputation for excellent service and grand designs, and makes the best use of technology.

Some of the rooms face the river in the direction of Dongfang Mingzhu Tower.

There are around 200 rooms in the hotel which is the only one situated in the Bund, the historic center of the city.

The Peace Hotel is just across the street from the Peninsula but it is currently under renovation.

The Peninsula Hotel Group used to own three hotels. One of them was Pujiang Hotel (Astor House Hotel) near the riverside but it was taken over by the state after the Communist Party came to power.

Peninsula Hotel re-entered the Shanghai market after successfully managing a hotel with the same name in Beijing.

The Kadoorie family reconstructed the hotel in 1910.

Renamed the Pujiang Hotel in 1959, it has maintained its old style while acting partly as a hostel. The Kadoories have built another landmark this time.

With the World Expo set to open in a few months, investors should carefully plan the best strategy to seize the opportunities on offer.

Timothy Kwai is an investment strategist at Quam Securities