As a result, not only has China's skyline been transformed at a remarkable pace, the real estate sector has become a symbol of the country's rampant growth. It has also become a target for government efforts to keep a lid on the overheating economy.
This attention is not unwarranted with the sector showing all the signs of a bubble waiting to burst. National Bureau of Statistics figures showed property developers invested US$35 billion in construction projects in the first three months of 2006, up 20% from the same period last year.
Construction activity came despite a surplus of properties on the market. At the end of March, 123 million square meters of real estate remained unsold, up 23.8% on the first quarter of 2005. In the residential sector, 69.8 million sq m of housing lay empty, which represents about 700,000 unoccupied apartments.
Excess supply had little impact on prices. Overall housing prices in 70 large and medium-sized cities rose 5.8% year-on-year in May, after climbing 5.6% in April and 5.4% in March.
Prices for new properties climbed 6.1% year-on-year in the same period. Several cities, including Dalian, Shenzhen and Inner Mongolia's Hohhot, registered double-digit increases on new properties. Only Shanghai and the northeastern city of Jinzhou experienced declines, by 6.2% and 0.8% respectively.
A key driver of domestic real estate investment has been the lack of alternative investment channels. According to a report by Jones Lang LaSalle last year, some 21.1% of China's newly rich urban citizens – a total of about 15 million individuals – said they preferred to invest in real estate than bank savings or stocks.
Many of the new Chinese millionaires being targeted by the US$1 million-plus villa complexes sprouting up across the country have themselves made their fortunes in real estate.
Government-backed programs of urbanization have allayed fears of the bubble bursting, at least among investors.
China's cities are expected to grow by more than 12 million people a year to 2050, taking the urban population rate from just under 40% now to 60% by 2020. More than 600 million people will be added to the urban population by 2050.
According to Macquarie Real Estate Asia, in Shanghai alone, that translates into a need for another 200,000 new units annually for at least the next decade. Added to that, governments at both the central and local level have been looking to increase the amount of living space per person.
But while demand for housing is set to continue, profit-hungry developers have concentrated on luxury housing at the expense of the low-cost accommodation that will be in demand. A Ministry of Construction survey this year found the average size of new flats in 16 main cities was more than 120sq m, much bigger than what an ordinary household could afford.
Homebuyers have grown increasingly annoyed at soaring prices. A Beijing Normal University study found 70% of China's urban residents could not afford to buy a new apartment, based on average housing prices in east China. A businessman in Shenzhen has even called for a national boycott of home purchasing over the next three years.
It is no surprise that in the absence of a market correction the government has been renewing efforts to reel in the sector. Adding to the concerns of civil unrest, dependence on bank credit for 50% of all real estate investment has seen bad loans in the sector soar 16.7% year-on-year to US$13.67 billion at the end of 2005, accounting for 12% of all property loans.
The central government first introduced cooling measures last year, but the market showed few signs of cooling, especially in the rapidly developing coastal cities. Further measures were introduced in May. These include raising down payments on loans for luxury homes from 20% to 30%, taxing proceeds from re-selling homes within five years, instead of the existing two, and ending bank loans to developers unless they funded at least 35% of project costs from their own capital.
The government also said it would take back land left idle for two years by developers, make local governments responsible for controlling property prices, and prosecute developers who manipulate market prices and information.
In a controversial step, the government also introduced rules to increase low cost housing, requiring developers to designate 70% of the units in a property project to apartments of no more than 90sq m.
New regulations restricting speculation in the mainland property market by foreign investors are expected to be announced soon, but no timescale has been given. During the first quarter of this year, foreign investment transactions in the mainland real estate market totaled US$5.4 billion, more than triple the same period last year.
It is still too early to tell whether the moves will be successful – in isolation they are probably not enough.
However, as the government continues to develop its capital markets, and opens up offshore opportunities for domestic investors, alternative investment instruments provide a much better hope for cooling real estate flames than any amount of government tinkering.