Great Expectations

Ke Haiqi is excited about the apartment he bought last year. Located in a modern residential compound in Shanghai, it's a 2,000-square-foot duplex with four bedrooms, two living rooms and no fewer than six big balconies. He has access to a tennis court in the compound and a communal garden. He bought the place because he's planning to get married next year, and is currently rushing to finish renovating it in time for his wedding. Despite being a 40-minute drive from the city center and the lack of a subway line, Ke paid about $150,000 for the apartment in the midst of China's real-estate boom, borrowing from his brother to make the 40 percent down payment and taking out a loan from a commercial bank. "For most people of my age, their family will pay part of the cost of buying their home," he says. "Parents feel they should do this on behalf of their children."

Many Chinese of Ke's generation have been chasing the lifestyle of their American counterparts. By opening up the real-estate market 10 years ago, China's leaders triggered an extraordinary boom in housing construction—the cost of the average home in Beijing has risen fourfold in the past eight years. Like many Americans, homeownership has become a significant source of personal wealth. Ke's apartment appreciated 30 percent six months after he bought it. The real-estate boom has gone hand in hand with the rapid growth of the middle class in China. Officially defined as those earning between $8,000 and $70,000 a year, it is a estimated to be 80 million strong. Although that's a small fraction of China's 1.3 billion people, it's growing quickly—15 million were added to the group between 2005 and 2007.

With growing wealth has come rising expectations. Ke's apartment is a far cry from the traditional house of his childhood, in a small town south of Shanghai, where he shared a bedroom with his two brothers. "Most of the middle class in this city would now expect to live in a residential compound with at least a swimming pool and a nice garden, as well as good transport connections," says Li Cheng, a real-estate consultant in the southern boom town of Shenzhen. The seriously rich, meanwhile, buy themselves suburban villas or new townhouses, or move into luxury apartment compounds with names like "Rich Gate."

As in most of the rest of the world, China's real-estate markets have cooled somewhat in recent months. Sales volume has been down significantly; sales in Beijing in August were 36 percent below those of the same month last year. But "cool" is a relative term. Last week at the annual housing fairs, which are held each October in major cities, crowds were large. Prices have hardly budged: some developers have begun to offer small discounts. Although Ke is concerned about signs of softening in the market in recent months, compared with the average American homeowner he's bursting with confidence.

Soaring property prices have done little to diminish the desire to buy property rather than rent, says Sam Crispin, head of Crispin Property Investment Management and a veteran of Shanghai's housing market reforms. "Many people see renting property as money down the drain," he notes. "It's a little like Britain: my home is my castle, even if I can't quite afford my health care or my education," he says. There's also been a speculative side to China's real-estate boom—with investors from wealthy parts of China such as eastern Zhejiang province pouring money into property all over the country fueling price rises in many second- and third-tier cities.

It means that even relatively remote cities have caught the real estate bug: in Guiyang, capital of the landlocked southwestern province of Guizhou—one of China's poorest regions—giant billboards advertising luxury real-estate developments are everywhere. Even in the province's smaller cities, such as Kaili, a town of 450,000 people, the streets are filled with advertisements for developments called "Bali Island Feeling" or "Hill and River Elegance," offering amenities such as "imperial Scandinavian-style forest parks." Slogans proclaim: "Go beyond urban dreams," "Upper-class building, elite life" and "Specially designed to fulfill the dreams of the successful urban elite." And the market is still in its early days here, says Chen Zefeng, a consultant for Crest, a Kaili property developer that is currently nearing completion on "Times Square," a high-rise compound in the city center. "It's only really since last year that people in this area have started buying real estate as an investment," she says, "now gradually more and more people are getting interested." The result, she says, is that prices of her development have increased by 40 percent over the past 18 months. "This was really beyond many people's expectations," she says.