In this vibrant capital city of 17 million, there is an insatiable demand for housing, yet prices remain far out of reach of most residents. American-style free-standing homes are being advertised for more than $1 million in gated communities with names like Versailles, Provence, Arcadia and Riviera. Within the Fourth Ring Road, a beltway that defines the central part of the city, two- and three-bedroom apartments are offered for $800,000 in compounds named Central Park and Riverside.
"These are like New York prices, but we are Chinese. We don't have that kind of money," said Zhang Huizhan, a 55-year-old businessman who owns a Chinese furniture factory. He has been looking for five years for an apartment for him and his wife within their budget of $150,000.
The average salary in Beijing is less than $6,000 a year.
Louis Kuijs, a senior economist at the World Bank in Beijing, said a lack of government supervision of the real estate industry tempted developers to build only for the luxury market and to ignore the mass market.
"If you think demand is endless for anything you build and you have just 200 square meters of land, you will build high-end apartments to make the highest profit," Kuijs said.
To its credit, the government recognized in 2007 that the real estate market was headed toward a bubble, economists say. In an attempt to make real estate more affordable, restrictions were introduced on ownership of second homes and on foreign home buyers. But the measures came too late, accelerating the crash of an already weakening market.
The Beijing Municipal Bureau of Statistics reported this month that housing sales in the city dropped 40% last year. Chinese economists have predicted that housing prices will drop 15% to 20% in Beijing this year. Shanghai has experienced a similar decline.
"You can look at this perhaps as a healthy correction in the market," Kuijs said.
In the longer term, he said, "China's urbanization and overall development is going to lead to a very large additional demand for housing in the city."
Before that happens, the situation could get worse. Most of the real estate has been financed by Chinese banks, which have avoided writing down the loans. Eventually, they will be forced to, and that probably will have a ripple effect throughout the economy.
"At the end, somebody is going to have to pay the piper," real estate expert Rodman said.