Real estate market in China had a strong growth in 2007, and the Chinese government implemented the land appreciation tax and imposed additional restrictions on foreign investment in the sector. Just when it looked like the boom would go on forever, the average housing price in 70 cities suffered consecutive monthly decline during the second half of 2008, and for some cities, the year of 2008 was the worst in the past ten years.

Shanghai real estate market has experienced a robust growth since 1990s except a few downturns including the 1999 and 2005 dips. Shanghai is generally considered to be a better performer in keeping its pricing during downtime, but Shanghai property sales had also experienced a significant decline during the second half of 2008. Shanghai, however, begins to show signs of improvement and seems to lead this sector to stabilization. Although with declining prices from the peak, it has shown an impressive rebound in new and exiting home sales. The government’s 4 trillion yuan, or $585 billion, stimulus plan will help mobilize private-sector investment in sectors such as real estate, although it relies mostly on government-led infrastructure investment. Given the high housing inventory level in most cities, a rebound in trading volume by no means means an instant price catch up. Time will be needed for adjustment for the real estate industry. Investors and home buyers are never too far away. After a period of waiting and observing, some start to see opportunities and dive in this market. Real estate is key to revival of the world’s third largest economy. Shanghai, China’s largest city and the eighth largest city in the world with several thousands of skyscrapers and its distinguished architecture, is in particular, the source of consumer confidence. A decline in Shanghai represents major instability in the national and global markets, and tends to create negative ripple effects.

Regardless of the current economic slowdown, the Shanghai banking regulator reinforced the second home requirement rule, reiterating that buyers must put at least a 40% down payment for purchasing a second home. This shows government’s disciplined approach in stimulating the real estate market. In general, the government makes lands available for sale primarily through auctions. The companies that purchase the lands will be responsible for building properties and selling the properties to the public. The residents will hold seventy year long property ownership.

Under the current policies, foreigners are entitled to one property if they have worked and lived in Shanghai for at least a year. Besides the residency requirement, they must purchase property only for their own use and can not lease it to others. Shanghai property transaction centers can make up own rules on trading on the basis of these policies, according to Shanghai Municipal Housing, Land and Resource Administration Bureau, and rules and implementation time could vary by district. Restrictions that were imposed on foreign investors from investing in the first tier cities like Shanghai have not been released, but real estate opportunities in the second and third tier cities or Shanghai nearby cities such as Hangzhou, Suzhou, Wuxi, are either open, or not as restricted. One thing to note is that overseas institutions and individuals that have set up a company in China may purchase property for purposes other than their own use. Regardless of economic and market conditions, Shanghai, with its unique historical background, rich cultures and vibrant growth, continues to attract people from all over the country and all over the world.

The Chinese real estate sector has rapidly grown in popularity with international property investors who seek maximum diversification within their portfolios because the real estate market in China is in demand locally and internationally and demand spans both the commercial and residential real estate sectors. This means that there is maximum room for profits, income and gains from Chinese real estate which makes it an intensely attractive commodity for investors.

The Chinese government are also keen to attract foreign investment into their country and began easing many restrictions to smooth the path for those interested in purchasing property in China back in 1998. Their efforts to boost their economy through the promotion of foreign direct investment proved almost too successful and resulted in the government fearing that speculators would strip the property market of stability. As a result the Chinese government have now made it more difficult for investors to realise short term gains from the property market.

In terms of foreigner’s rights when it comes to owning real estate in China, all overseas buyers are protected by Chinese law but actual real estate law and the property buying process in China are new concepts that are relatively immature and unsophisticated. This means that investors who wish to buy property directly in China need to secure the services of a reputable lawyer to assist with the intricacies of the real estate purchase process.

For those who wish to maximise the potential gains available in Chinese property but who wish to remain relatively hands off any investment made, there are a series of property investment funds specialising in Chinese real estate now available. Such funds issued by larger, well established financial institutions are proving increasingly popular with both local and international investors. Such real estate investment funds allow an investor to gain access to the potential of the property market in China without having to commit significant sums of money directly to the market.