I think that the market is not so gloomy as you suggest. Maybe the really expensive, Tier 1 cities are now unattractive as investment locations, but the smaller cities still have a long way to go. Infrastructure is being built at a frenetic pace, and more workers are moving in from the countryside. Although things are not perfect, the Chinese economy now is strong enough to withstand a slight downturn in the US economy, especially since it produces a lot of cheaper manufactures that will not suffer as much as the luxury sectors even if there is a recession in the US. China does not produce BMWs or Rolex watches.

The other factor which is very important to an overseas investor is the currency play. The US dollar is dropping sharply against other major currencies (e.g. the Euro). The authorities will try to keep the RMB pegged to a trading basket of currencies, but at a rate that favours China exporters. The RMB will be allowed to rise against the USD for years to come (with strong pressure from the US authorities), which will mean that for a US-based investor (or a GBP or Euro one, in practice) even a flat real estate market in China represents an opportunity to make money.

If RMB assets can be combined with USD liabilities (e.g. the purchase of a China apartment is funded by re-mortgaging the family home) then the profits from the currency play are magnified!