Influx of new businesses, residents sets off property boom

But not all housing projects in or near the FTZ will experience sharp price hikes. For instance, the Pudong Airport Comprehensive Free Trade Zone is mainly positioned as a logistics and transport center, and it lacks commercial facilities, so the prices of local residential projects aren't rising sharply, an analyst said.

According to property-market research firm DTZ, the average home price in Lingang now ranges from 10,000 yuan ($1,638) to 11,000 yuan per sq m, while the average in Waigaoqiao is about 33,731 yuan. In the Pudong Airport zone, it's 13,627 yuan per sq m.

"Neighboring land prices will definitely go up, just like what happened with the Lujiazui Finance and Trade Zone," said Xie Chen, research director of CBRE Shanghai.

According to Xie, the Lujiazui area's annual investment in infrastructure was less than 200 million yuan in the early 1990s, but it surged to 20 to 30 billion yuan in 2009 and 2010.

Another example of what happens to property prices when a new, special zone is on the horizon is the sparsely populated Qianhai Bay economic zone. Within less than a year after the State Council, China's cabinet, approved development and opening-up policies for the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, two sites drew total bids of 12.37 billion yuan in July, exceeding the annual total value of all land auctioned in Shenzhen in the past six years.

"We can expect similar developments in free trade zone areas," said Jonathan Wei, head of occupier services at DTZ China.

Analysts suggested that it would be better if land values rose gradually in line with the development of infrastructure and industry in the FTZ, because a runaway rise in values will undermine the zone's development.

Compared with residential property, commercial projects and land for industrial use may benefit more from the Shanghai FTZ concept, as more land will be needed for logistics infrastructure and more office space will be required by new companies or divisions setting foot in the FTZ, said Song Huiyong, research director with Shanghai Centaline Property Consultants Ltd.

"Growing trade means more logistics space for storage, which will be good news for industrial park developers.

"As a result, the industrial property sector will be the first to benefit from the free trade zone development among all property sectors," said Shaun Brodie, head of China strategy research at DTZ.