High Stakes Game

Foreign investors may be a rarity in China’s residential property market, but the potential rewards can be astronomical. With prices going through the roof in major cities, however, fears that the bubble will burst remain relevant

- Diana Hubbell

With luxury condos in Shanghai selling at rates comparable to London or Manhattan, it is small wonder that the Chinese residential market is a source of endless speculation. As enticing as some of the lofty sums being exchanged at the highest end might appear, the proportion of foreign investors in the market remains minuscule, with many leery of peeling away the necessary layers of bureaucracy.

Among the chief concerns are the rumours of a housing bubble and impending crash that have plagued the market for years. The Chinese government’s enduring confidence in the nation’s future economic primacy has led to missteps in the commercial sector in the past.

More than a few of the nation’s tier-3 cities, once thought to be on the cusp of a boom, are now burdened with vacant shopping centres hawking premium products beyond the financial grasp of the vast majority of the population. Similarly, these amply proportioned, but relatively obscure cities are prone to oversupply of expensive new housing.

Fears that the real estate markets in more major centres might be reflective of a similarly outlandish level of optimism have often given investors pause.

Most analysts agree that these fears are overblown, if not unfounded. “People have been talking about a bubble for at least the last decade,” says David Ji, director and head of research and consultancy for China at Knight Frank. “I think that indicates a lack of solid understanding of how the Chinese real estate market works.”