More overseas real estate investors are likely to turn to second-tier cities to take advantage of smoother administrative procedures and avoid the tough competition of core cities, industry experts said yesterday.

They said high quality offices and residential properties would remain highly sought after by overseas capital.

"Overseas investors, especially new players such as Winnington Capital and SEB, are opting to join forces with local developers in second-tier city projects," said Kenny Ho, head of research, Shanghai, for Jones Lang LaSalle. "Processing deals for approval appears to get more support, aided by healthy enthusiasm from local governments."

Joining forces with overseas companies is attractive to Chinese companies as they can tap into the expertise that overseas partners can deliver, the experts said.

The Shanghai market has already seen decreasing number of en bloc asset acquisitions over the past twelve months. The latest Jones Lang LaSalle market research has found that 29 en bloc purchases totaling 28 billion yuan (US$3.8 billion) were sealed during the past 2007, as compared to 32 acquisitions worth 24.2 billion yuan in the previous year.

Higher threshold and growing cost of investment, as well as an expected policy risk on overseas investment in the local market, might divert some overseas players to non-core cities for better opportunities, Colliers International said.

However, in general, the local real estate investment market will hold steady in 2008.

Globalization of real estate capital will affect China in 2008 and the subprime crisis in the US have made property funds, especially Japanese and American, search for investments with growth, Ho said.

In particular, industry experts predicted that Grade A offices and serviced apartments will continue to suck in most overseas capital in the local market.

Latest statistics showed that investment in offices and residential properties each grabbed 66 percent and 13 percent of total investment in Shanghai last year, topping all other sectors including mixed-use projects, logistics and retail facilities which each took 10 percent, seven percent and four percent, respectively.

(Shanghai Daily January 11, 2008)