Simon Turcotte of the Canada Chamber of Commerce in Shanghai said it is good news to expatriates like himself because he will have the freedom to choose whatever properties he likes.

"This will offer me a new way of investing," he said. "But I know there are restrictions and price differences."

Expatriates and Chinese from Hong Kong, Macao and Taiwan have been restricted to buying specially targeted houses - foreign-sale properties, while Chinese on the mainland can buy wherever they wish.

"The demarcation is a product of the social system," said Edward K C Cheung, general manager of the Shanghai Office of DTZ Debenham Tie Leung International Property Advisers.

In the late 1980s, the city was eager to outline its layout and it was necessary to revamp the particular areas where shabby huts used to stand.

"That is how the city has so rapidly managed to develop its infrastructure such as the highways and subways," Cheung said.

In 1988, the first piece of land in Hongqiao area was leased to a Japanese company to construct the current Sun Plaza.

Since then, foreign capital had continued to pour into local real estate market till the peak in 1994 when 452 pieces of land were leased for property development.

Plots were sold to developers for almost double their value in the domestic sale market. High quality building materials were used to construct the usually furnished houses, making them much more expensive than apartments targeted for Chinese buyers.

At that time, the market for domestic-sale properties was not very active because most people received free housing from their employers under the decades old welfare housing system.

The less restricted massive land leasing by the government to develop foreign-sale houses has resulted in a large surplus in the housing market after 1995.

The recovering economy will go some way to help revitalize the market but it is becoming increasingly important to lift restrictions.

"The government will offer national treatment to expats after China's accession to the World Trade Organization," Cheung said.

Overseas buyers, especially the returned Chinese students who have obtained permanent residence abroad, have become increasingly dissatisfied with the price difference.

Like Wan Jian who has settled in Austria, these people see no reason why they have to pay at least IS$100,000 to buy an appointed property if they want to invest here.

"The move is actually the inevitable result of the property market's development towards a more fair and transparent system," said Solo W.S. Cheung, general manager of marketing of Hong Kong-based Oriental Overseas Real Estate Group.

He added that as the fluctuation in foreign-sales settles and the government encourages individuals to use mortgages to buy properties, the quality and price gap between them will narrow. Urged by the increasing desire of local people for better living conditions, developers of domestic-sale properties now have to try and construct more creatively designed buildings.

The well-to-do people in Shanghai used to buy foreign-sale properties as a display of wealth, but their choice is no longer affected by the category into which the property falls. "So the demarcation has no reason to exist," Cheung said.

He recalled that when the group decided to enter the local property market, it first leased a piece of land in the early 1990s to develop Fontainebleau, a foreign-sale building completed in 1999.

"We discovered from that project that domestic demand is much greater than foreign," he said. "And there is no such demarcation in Hong Kong."

Believing that the two sectors will be merged sooner or later, the company has launched projects such as "The Courtyards" as domestic-sale property.

Cheung explained that it took a long time for the government to remove the restriction for several reasons.

"The main concern is over how to compensate the developers who have leased the land but not yet received any financial reward as the properties are under construction or still on the drafting table," Cheung said.

The government has its reasons for not taking this problem into consideration, however, it is partially responsible. The government's encouragement of the foreign-sale sector caused enormous problems for many developers.

To relieve the pressure on the developers, the government has consulted various non-governmental channels for advice on how to solve the problem, according to Cheung.

"Hong Kong's Letter B policy may be referred to," Solo Cheung said.

It means if a developer starts more projects, he can receive land equal in value to the price he paid for the former project.

Though many developers would appreciate a favourable tax policy, it is unlikely for the government to follow this course, insiders said.

Both Cheungs agreed that the move will be a big spur to the real estate market, which should become fairer, perhaps one of the city's pillar industries.

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