With the government's cooling measures starting to prove effective across China, Shanghai's luxury residential market has not been immune, as Knight Frank's recent report shows. Prices softened 5% over the quarter, with sales volumes over the year down on 2010 and 2009 levels.

The luxury rental market however, fuelled by increasing demand from expatriates, performed better, with rents increasing marginally over the quarter and 8% over the whole of 2011.

With the restrictions on home purchases likely to continue in 2012, Knight Frank predicts that the average luxury home price in Shanghai will decrease by approximately 5%.

In the rental market, we expect both occupancy rates and rental rates to increase in the short term. Apartment units with monthly rents between RMB8,000 and 15,000 will see the most demand and we will see higher growth rate in rents. Overall, luxury rents are expected to grow by 8% in 2012.

For more information see the Knight Frank Q4 2011 Luxury Residential Market Report, Shanghai

Nicholas Holt is Knight Frank's Research Manager for the Asia-Pacific region and is based in Singapore. He previously worked for the firm's research department in Vietnam and will now be a regular contributor to Global Briefing.

You can contact Nicholas on nicholas.holt@asia.knightfrank.com