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November 5, 2009

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Just call it Disney$land

THE announcement yesterday by Shanghai government that the city won state approval for a Disneyland in Pudong New Area immediately pushed land prices around the theme park's future site to record highs - even above the expectations of most industry analysts.

Less than two hours after the decision was publicized, a 56,570-square-meter land parcel in Chuansha designated for residential development was sold to a real estate developer from Xiamen, eastern China's Fujian Province, for 1.19 billion yuan (US$174 million), according to a statement posted on the Website of the Shanghai Urban Planning, Land and Resources Administration Bureau.

More than 60 developers expressed an interest in the parcel, reportedly only 3 kilometers from the site of the future Disney park, and 17 companies ultimately competed for the land, offered at a starting price of 326.8 million yuan, the bureau said.

The final price Xiamen Xiangyu Group paid for the land - 14,024 yuan per square meter - exceeds average apartment prices in nearby projects, which range from around 8,000 yuan per square meter to more than 13,000 yuan. Whether home prices will skyrocket in the near term was an open question yesterday, however.

"Generally speaking, the news will have positive effects on residential development in neighboring areas, but mainly in the long run due to anticipated improvements in infrastructure within the next few years," said Jenny Wu, head of the residential sector for east China operations at real estate services provider DTZ.

"In the short term, we expect housing prices in the area to remain rather stable as they're already very high."

DTZ found that home prices in Chuansha jumped to more than 13,000 yuan per square meter from only 2,000 to 3,000 yuan over the past two to three years, creating growing concerns that property values may already reflect most of the benefits that proximity to the park may bring.

The limited supply of land in Chuansha might be another reason for the record price, industry analysts said.

The parcel sold yesterday to Xiamen Xiangyu was the only one offered in Chuansha for residential use since 2005, according to Gong Min, a researcher at Shanghai Centaline Property Consultants Ltd, which operates one of the city's largest brokerage chains.

"The future extension of Metro lines through the Chuansha area should remain the most important driver of residential property development and home buyer demand near the park," said Steven McCord, senior manager of research with real estate services provider Jones Lang LaSalle Shanghai.

"The park itself is unlikely to be a consideration for home buyers, who are looking primarily at accessibility to the city and daily life amenities such as supermarkets and schools."

Industry analysts also pointed out that the positive effects of Disney's arrival will be spread across the city.

"The direct impact of the Disney park should be on the city's retail sector," said Hingyin Lee of real estate services provider Colliers International. "The park will draw a large number of tourists, from both home and abroad, who will spend not only in the park and the vicinity but also in other prime retail areas across the city."

Tourist spending now accounts for about one-quarter of Shanghai's total retail sales, and the coming Disneyland should lift that ratio further, Colliers said. Prime retail areas such as Nanjing Road E. and the Bund will be major beneficiaries, Lee said.

McCord from the real estate services firm Jones Lang LaSalle agreed.

"Similar to Hong Kong (Disneyland), the park will likely be a one-day event, or day trip, during a multi-day stay in Shanghai for most tourists," he said.

"The tourists who come to Shanghai for Disneyland will also visit traditional tourist spots in the city, and retail development around those places, as well as the traditional shopping clusters in the city, will definitely benefit."

Industry analysts also predicted there will be a surge in the number of retail shops and small restaurants in the vicinity of the park amid growing demand from bus drivers, construction workers and Disneyland employees.


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