Salient to Investors:

Real estate investors and developers are abandoning a two-year foray into China’s provincial cities and switching back to Shanghai and Beijing, where prime offices are close to full occupancy and rents are on par with New York and Sydney, and home prices are stabilizing.

Home prices have risen 155 percent nationwide since China privatised housing in 1998.

Daan Van Aert at APG Investment Asia sees less visibility on price and growth in the second-tier cities – returns don’t justify the risks for institutional investors.

Jinsong Du at Credit Suisse said developers always wanted land in major cities, but supply is limited, so they were forced to expand to smaller cities in order to grow.

Kenny Wu at JI-Asia Research said building in small and medium-sized cities shouldn’t be a long-term strategy because the internal demand is smaller than in big ones.

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