My third week in China and I finally made it out to Shanghai.

I have seen the light! This city is exactly why foreign companies are rushing into this country.

In the last 15 years, Shanghai has changed from a fairly modern city (by China’s standards), into an extremely modern city by anyone’s standards.

Pu Dong, the area to the East of the Huang Pu Gang River, used to be farmland as far as the eye could see. Some of the older businesspeople I’ve met tell me how they would go there as children to catch small animals and play in the grass.

Now, Pu Dong is the Wall St. of Shanghai and where many of this city’s financial executives now live.

My first day here I walked around the Jingan District and saw mostly foreign clothing brands, expensive cigar and liquor stores and shopping malls that rivaled anything I’ve seen in America.

Most of the cars on the road are foreign and it’s not rare to see a Mercedes or Lexus dealership on some of the main roads. I’ve even seen a Ferrari and Maserati dealership around town.

None of this compares to the number of Starbucks coffee houses this city boasts. I think it rivals New York City in the number of shops per square mile. They even have a few drinks here that we don’t have in the states, which I hope changes very soon.

The bottom line is, if you’re doing business in China, seeing how things get done in Shanghai would be a great idea.

One of the things that really struck me when we got here was the amount of residential construction that was taking place. In Beijing, there is a ton of commercial construction, but I’ve definitely seen more new homes and apartment buildings going up in Shanghai than anywhere else.

Because of a few business contacts I’ve made in the States, I had the pleasure of staying in one of the newest housing developments in Shanghai. It is a private community designed for foreign-born Chinese business people when they return to China.

The community resembles something you would typically see in Florida. Spanish-tiled roofs, palm trees and swimming pools. All of the homes are outfitted with central air conditioning, heating and high speed Internet access. They go for roughly $10,000 per month and the leases are short-term, ranging from 6-months to 1 year. This is ideal for many foreign businessmen who may be transplanting their families but want to maintain some western style in their lives.

I also had the opportunity to live in a gated apartment building community this week. Instead of Western style communities, these apartment buildings resemble Western style apartment complexes. They are also outfitted with central air conditioning and heating, community swimming pools and parking facilities.

As these communities are built more for locals, rather than foreigners or expatriates, they are more often bought outright, rather than being rented or leased out. A 4-bedroom apartment in one of Pu Dong’s more upscale complexes could be roughly $750,000 - $1,000,000 USD.

From what I hear, this price has doubled in the last 12 months! Meaning, one year ago, you could have bought the exact same unit for $375,000, and the word is that the price increases show no sign of slowing down.

The biggest question I had when I saw all of this development and the high price tags on all of the homes was: “Are these developers misjudging the market? Aren’t they worried about over-capacity?”

These fears were put to rest when one developer told me all of his units were already rented out and he hadn’t even finished all of the new homes yet. And from what I hear from the residents of other communities, most of the units are pre-sold by about 1 – 2 years before the complexes are completed.

I can’t think of a better situation for Chinese homebuilders. They’re able to accurately gauge demand before the homes are built, they have pricing power, and with a rapidly increasing upper-middle class; the demand for these homes shows no sign of weakening.

This also doesn’t take into account the lower-middle class housing that’s being built all over the outskirts of Shanghai. Every day, people are flocking to this city hoping to find a better life for themselves, and it is they who will occupy much of the new housing now and in the future.

As an investor, I would certainly look into homebuilding companies that have a strong presence in China as a good long-term growth investment.

To ignore the housing trend in China would be detrimental to any intelligent investor’s portfolio.