Economic reforms begun in 1979 and continuing today have opened up China to foreign investment, allowed privatization and outsourcing of many state-owned enterprises, lifted price controls and permitted entrepreneurs to start businesses. In 1998, the country's antiquated welfare housing system was abolished, allowing Chinese citizens to purchase residential property and banks to provide mortgages.

These reforms have resulted in an almost unprecedented level of growth in China. Over the past 10 years, China has averaged 10.5% annual GDP growth, with corresponding average annual disposable income per capita growth of 9.7% over the same period. This growth has also driven a mass urbanization trend, with approximately 15 million people moving from rural to urban centers annually. Today China's urban population composes approximately half of its 1.3 billion population, and experts predict that percentage will increase to about 65% by 2030. In addition, China's personal-saving rate has historically exceeded 30%, resulting in tremendous consumer purchasing power.

Economic and urban population growth has resulted in a rapidly growing middle class and a corresponding demand for residential housing. Today well over 50 million families in China can afford a new home, which is far more than the average annual number of new homes built in China.

This supply-demand imbalance for China housing has created tremendous opportunities in private real estate. Like any emerging market, however, international firms looking to capitalize on opportunities in China will be faced with numerous challenges. Navigating cultural, economic and regulatory issues in China takes time, patience and cultural sensitivity. Success requires having a focused investment strategy aligned with China's goals, an investment team comprising local professionals and parallel interests with local joint venture partners.

A common mistake Western investors make in emerging markets such as China is sticking to familiar geographies and strategies. For example, most people who have traveled to China have visited Shanghai or Beijing. Not surprisingly, this familiarity often leads to a sense of security about these markets. However, the residential markets in Shanghai and Beijing have a high percentage of speculative buyers who have driven prices to levels far in excess of disposable income growth and well out of reach to the average homebuyer.

Unlike Shanghai and Beijing, homebuyers in cities such as Nanjing, Chengdu, Chong­qing and others are overwhelmingly owner-occupants, so speculative demand is low and annual price growth is in line with disposable income growth. Moreover, the Chinese government's "Go West" policy encourages development in the country's interior cities, and there have been many favorable regulatory developments in those markets. And while most of these cities aren't as large as Beijing and Shanghai, they still have populations of 5 million to 10 million people.

Determining what geographies and strategies are in line with the needs of China, as opposed to simply investing in cities that are well known to Westerners, is key to mitigating risk and maximizing success.

Real estate is a local business in any market, and China is no different. The benefits of key relationships and market knowledge can be realized only with an on-the-ground team of Chinese real estate professionals with significant local experience, particularly in the development and construction arenas. It is also essential that the local team be bilingual, have gone to school in the West and/or have Western working experience. Having a bicultural team whose members can operate in their native Chinese business culture and also possess an understanding of Western investment discipline is necessary to bridge the gap between two very different cultures.

A critical element for success in China real estate is selecting the right joint-­venture development partners. Once the partner is selected, essential requirements in the JV agreement include board representation, stringent control rights, the ability to have a full-time on-site construction manager, control of all project company finances and a commitment to aid in the repatriation of capital. Equally important is the alignment of interests with the JV partner, as the tighter both parties are aligned, the less risk there will be for disputes.

There are numerous paths to success in China real estate. However, a strategy that is aligned with the country's objectives and is supported by a local team and that has a strong alignment of interests with local JV partners will result in less risk and, ideally, a higher chance of success in China.

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Thomas R. Delatour Jr. is chief executive of Century Bridge Capital in Beijing.