China's real estate market became an increasingly popular destination for inter-regional capital last year, racking up US$2.3 billion in purchases, according to a new industry report.

Investors from the United States, Australia and Singapore were particularly active in the retail and office markets, purchasing more than US$1.6 billion in assets, according to Jones Lang LaSalle's latest global real estate capital report.

Shanghai was the main focus for cross-border investors targeting office and retail; however, as competition for investment intensifies, many investors are beginning to target secondary cities, the report said.

Among the big local deals, Macquarie Global Property Advisers Ltd, a private equity unit under Australia's biggest investment bank, acquired Xinmao Plaza, an office tower in downtown Shanghai, for US$98 million at the beginning of last year.

The deal heralded the growing number of foreign institutional investors that are betting rising incomes and deregulation of the banking and retail industries will spur demand for offices, shops and homes in China.

Morgan Stanley said this week it will triple investment in the Chinese property market this year, shifting emphasis from Japan to the world's fastest-growing major economy.

The New York-based investment bank has bought US$1.5 billion worth of Chinese property in the past five years.

"China is at the stage where the secondary market is emerging, which will allow the first batch of investors to get better yields," said Pol-Henry Cox, country head of Jones Lang LaSalle China.

Dutch investment bank ING's real estate investment arm sold a serviced apartment in downtown Shanghai for about US$100 million last month, more than triple its sales price three years ago.

ING said the proceeds from the sale will be used to make new acquisitions in China.

Meanwhile, Chinese investors are expected to become significant capital exporters, the report said.

(Shanghai Daily March 18, 2006)