Investors in luxury Chinese mainland property are playing a high-stakes game, with forecasts for rising prices offset by dire warnings of falling rents, poor sales opportunities and the threat of government intervention.

Few analysts predict a total property market crash in Shanghai because demand for low and medium-cost housing in the booming city is high. But people who buy luxury flats for a quick profit could end up disappointed.

"A hot-shot in Hong Kong who bought a half million dollar home in Shanghai will find that he can't lease it and he can't sell it," said Peter Churchouse, a veteran Hong Kong-based property analyst who left investment bank Morgan Stanley to run a hedge fund devoted to property.

Shanghai is widely expected to become a major financial center over the next decade, on a par with London, New York and Tokyo, but at this point there are not enough high-earners to fill expensive apartments.

"It's going to have to go through some cycles and pain to get there," said Churchouse.

While Shanghai luxury residential prices have jumped on average by about 20 percent in the last two years, rents have held steady. In Beijing, villa prices have not moved in the last couple of years but rents have fallen about 10 percent.

With no sign that the Chinese luxury rental market is set for a quick recovery, Churchouse said property prices were ripe for a fall. "You can't have prices and rents going in opposite directions for a long time," he said.

Not everyone agrees. Morgan Stanley analyst Kenny Tse said Shanghai apartment prices could rise a further 15 percent this year.

Demand would hold strong, Tse said, while new rules to reduce building sizes and heightened government sensitivity over relocating residents to make way for new projects would squeeze new city center supply.

Speculation is rife, especially in Shanghai. Developers said purchase contracts for some sparkling new 100 square meter apartments doubled in price last year to as much as US$550,000 before construction even finished.

(Shenzhen Daily February 7, 2005)