The annual rate of return from mainland property investments remains at the 20 percent level, compared to 8 to 16 percent in the United States and Europe, said Christine Kim, a partner in real-estate practice at international law firm Jones Day.

"Despite factoring in the austerity measures, the return on investment from China properties is still higher than that of overseas," Kim told a Hong Kong media briefing in releasing her firm's 2007 property outlook.

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Private equity funds were seen flowing into Asia - particularly China - during the last quarter, even as the central government was announcing more stringent enforcement of China's land appreciation tax and other measures.

Two funds focusing on China have been set up, with one about to close and the other in the formation stage, Kim said, adding the funds included money from the United States and Japan.

"During last year, about US$650 billion (HK$5.07 trillion) of global real- estate transactions were concluded, with only 15 percent taking place in Asia," Kim said.

This year, she expects transactions in Asia will have room to grow, with China being the focal point.

Jones Day believes the property market in China will continue growing since the austerity measures were only implemented in major cities such as Beijing and Shanghai, leaving second- and third-tier cities unscathed.

"Though the returns will not be as high as Beijing's 20 percent, it's still do-able," Kim said. Housing demand brought on by population growth and per-capita income rise will be the key factors sustaining property prices in the second- and third-tier cities for the next decade, she said.

Carson Wen, a partner in mergers and acquisitions at Jones Day, said China's new property law should be passed this year to enhance private ownership.

Wen said Chinese companies will be active in the second half, with mergers and acquisitions most obvious.

He said China is now in the midst of a growth cycle, with consolidation of small state-owned enterprises to create larger entities continuing.