Seven years ago, Joan Ng came to Shanghai from Hong Kong and fell in love with the city. Confident of its future and that it would attract foreign investors, in 1997 she spent US$350,000 on an apartment in a high-class block to rent to foreigners. The first months' rent was US$3,500, giving her a return of more than 10 per cent in the first year. But now the apartment is worth just US$200,000 and the rent is US$1,500 a month. 'I am very unhappy about this. I believed the promises of the government that it would make Shanghai into a great city. Many other Hong Kong people, as well as those from Taiwan, Singapore and overseas, are in the same boat,' she said. The critical blow was the decision in August last year by the Shanghai city government to unify the housing market, combining properties that were previously reserved for foreigners, waixiao fang - and those for locals, neixiao fang. 'This was a very unfair decision,' said Ms Ng, 48, who runs her own clothing business. 'I never imagined for one moment that they would unify the market. It instantly brought down the value of the property reserved for foreigners.' The government gave as its reasons for unifying the market the need to offer equal treatment to foreign buyers and to bring the city in line with international practice. The result was a flood of money into the neixiao market from those who had been restricted until then to the waixiao one. The flow of funds brought prices in the neixiao market up while sending those in the waixiao market down. The other measure that hurt Ms Ng and similar people was the offer by the city government to give a refund on personal income tax, for foreigners as well as Chinese, if the money was used to buy a home. The offer expires in May. The effect was to persuade people who would otherwise have rented, especially foreigners and non-permanent residents, to buy, because buying an apartment for two to three years and then selling, even at a lower price, became more economical than renting. This took out of the rental market many potential clients for landlords such as Ms Ng. They have been the unlucky ones in a city where real estate has been one of the principal engines of the economy, driven by the flood of investment from foreign and domestic companies and individuals moving into the city. Official figures published last Wednesday by the Shanghai government showed contracted foreign investment in the city last year at US$10.58 billion, an increase of 43.4 per cent over 2001, and actual foreign investment at US$5.03 billion, up 16 per cent. In addition, 6,427 firms from other parts of the mainland invested in the city. Shanghai also said the real estate sector grew rapidly but gave no figure. It set a target of investment this year in fixed assets, including real estate, at 220 billion yuan (about HK$206.49 billion). In its latest report on the Shanghai property market, real estate company CB Richard Ellis was similarly upbeat. 'Demand for prime office space in Shanghai continued to be buoyant in the fourth quarter of 2002, reflected by a hefty take-up of 160,000 square metres,' the report said. 'Overall office rentals firmed slightly over the quarter, with Puxi rents increasing by 0.5 per cent. 'The Shanghai luxury residential market performed well during the quarter, with rents up 2.1 per cent and capital values gaining 3 per cent. 'Buoyant sentiment in the retail market allowed developers to raise rentals in major shopping centres,' it added. Office space in Shanghai has reached 2.88 million square metres, half of the total in Hong Kong, according to the Shanghai Securities News. 'The sale price at the upper end is US$1,000 to US$2,500 per square metre, with rents at 40 to 80 US cents per day, offering a rate of return of 8 to 12 per cent.' It reported many of the buyers were individuals and private companies. 'Choices for investment in China are too few. Many investors are looking for something new that offers a steady return, on something other than stocks and bonds, to diversify their risk. Property is an attractive choice.' Another bullish factor is the World Expo in Shanghai, which has persuaded many people that property prices cannot fall ahead of the event. All this seems a far cry from the warning issued by the central bank last week that banks needed to balance support for the property market with the need to prevent a bubble. 'Real estate lending policies should adopt methods to achieve a soft landing,' the People's Bank said in a report on its Web site.