During the middle and late 1990's, real estate markets in big cities were overheated. Price of prime land in Beijing has fallen from the highs experienced in the boom development period of the early 1990s. In 1999, the vacancy rate for Grade A buildings was 30% in Beijing and 38% in Shanghai. Some experts estimated that the vacant space might take two to three years to be absorbed if the recent trends in demand continue. The market now seems to be picking up the momentum when many residents are upgrading into bigger housing.
The overall real estate market in China is dynamic and grows fast in terms of capital flow and development speed in spite of the problems. The resale housing market is almost nonexistent in China a few years ago.
In 1999, the government completed its basic policy for secondary housing market and encouraged urban residents who owned their homes to sell smaller, older, and low-quality houses in exchange for bigger, newer, and high-quality ones. Some cities, e.g. Shanghai and Ma Ansan of Anhui province started to experiment the secondary market earlier than other cities in China. Since 1996, there have been 67,333 residential properties being put for sales on the market in Shanghai, accounting for about 5% of the total sold properties there in the same period.
In 2000 alone, about 7.5 million square meters (80.73 million square feet) existing houses were sold in Shanghai. The total transaction amount was valued at RMB 65.6 billion (about U.S. $8 billion).11 There are over 5,000 foreign funded real estate companies, including China-foreign joint ventures (JVs) or cooperative enterprises, and over 1,000 wholly foreign-owned companies currently operating in China.
Hong Kong is the top investor, accounting for over 75% of total foreign investment, followed by the United States and Taiwan.12 The following chart shows the amount of total foreign investment in the Chinese real estate market in recent years. There was a drop in investment in 1997 and 1998 that could be attributed to the Asian finance crisis and over heating of the real estate market in late 90's. The housing industry has become a powerful engine behind the rapid economic development in China and contributed about 1.5 percentage points to 1999's 7.1 percent economic growth. From the report above,we can see that the growth speed for real estate companies are very fast.