By Sam Crispin, Head of China Research, FPDSavills

Construction sites have covered Shanghai like a nasty rash for so long that most long-term residents of the city have simply got used to it. One statistic from a couple of years ago was that Shanghai had more than 20,000 construction sites of various types dotted around the city. Work is coming to an end on many of these and other empty sites are being grassed over so that the rash looks set to clear up before long.

Will Shanghai be the same without construction sites? Will Shanghai have the same appeal when it is just another jungle of concrete and reflective glass without the taste of concrete dust in our nostrils? Will we be able to sleep without the familiar 'humm' of concrete being pumped late into the night? Perhaps we will all heave a collective sigh of relief that Shanghai has finally been 'finished' but nights out on the town will not be quite the same without having to dodge queues of concrete mixers.

Even after 5 years watching homes make way for roads, offices and shopping centres it is amazing to see so much construction going on, especially with the property markets the way they are already. Is there any rationale to this? Perhaps there is something we are missing. Is there still a pot of gold at the end of every crane?

There is no simple explanation other than what in broad economic terms would be called a gross misallocation of resources. For locally backed projects this has been fuelled by a number of things including a lack of information otherwise known as blissful ignorance and a disease known as 'monumentitis'.

Foreign developers who have paid for land use rights and are thus committed to projects did not expect to find themselves in this situation while the money they paid for land has been ploughed back into further development of the city. They are now faced with the difficult choice of whether to proceed and hope for an improvement in the market by the time of completion or delay construction and wait for signs of better times before starting. The real dilemma comes with half completed projects. Suspending construction once the first floors have been built can result in deterioration of the structure; pressing ahead and completing construction in the present market can seem like throwing good money after bad. There is no simple answer and much depends on micro-market conditions around specific projects and for the proposed use. To help, the government has eased regulations that put a limit on the time between purchasing land use rights and breaking ground to allow sites to be grassed over, but that is not an option where 40 storeys of concrete has already been poured.

Stopping work mid-way is the most obvious strategy developers have come up with to deal with the current market and Shanghai has had a number of obvious 'tombstone' (half-completed) projects that have seen little or no activity for a year or more. One of Shanghai's longest standing 'tombstones', found a new lease of life late last year. Known confusingly as Central Plaza, not to be mistaken with 2 other buildings bearing the similar English name, the project is to be 60 per cent occupied by the Xinmin Wanbao who are a co-investor in the building. The Xinmin Wanbao is Shanghai's liveliest Chinese newspaper, possibly best known to most expatriates in Shanghai by the vendors who call out 'yabo, yabo' (Shanghainese for wanbao) on street corners and between the traffic queues during the evening rush hour. The developer, the Zhidi (Landmark) Group, will occupy another 26,000 sq.m. of the 70,000 sq.m. 43 storey building.

Other strategies developers take are plunging ahead as quickly as possible and this has worked very well in the case of the Kerry Centre where office space is now 60 per cent occupied and over 50 per cent of the apartments have been leased within five months. Another overseas developer has sensibly chosen to concentrate resources on their residential projects while work on their office project has been slowed.

By the time the middle section of Yan'an Road, Metro Line 2 and Pudong International Airport have all been completed (October this year), work on the construction of Shanghai will be more or less finished. The thinking behind all this is presumably to make Shanghai the international metropolis that it deserves to be and once all this hardware is in place the rest will follow. One story goes that from 1949 the Central Government denied Shanghai the right to spend money on itself as punishment for being the 'whore of Asia' before liberation. Whether that is true or not, once the taps of finance were turned on Shanghai has wasted no time in making up for lost time in the last 10 years.

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