VIDEO: Edward Epstein of Troutman Sanders

"Combining real estate with old age care and health care will be a big draw card because it's another way of looking at the real estate market while also dealing with China's policy concerns of improving age care and health care," he says.

Consolidation will accompany this specialization as many of the smaller funds are squeezed out of the market. However, Epstein sees no slowdown in Chinese interest in real estate investment, describing private equity as a "perfect match" for the sector. Indeed, in recent years fund participation in property as intensified at the larger end of the market, as banks team up with trust companies to invest in the sector through private equity fund-like structures.

For foreign investors, an appetite for exposure is tempered by regulatory and macroeconomic concerns. Since 2006, foreign participation in the sector has been curbed through the introduction of new rules relating to approvals and financing.

"Although the interest is still there it's much more difficult to do and you must be more determined," Epstein says. "The fact that there is a concern, particularly in the residential sector, that there is a bubble in China and it might burst as opposed to deflate is also challenging for foreign investors."

Regulatory pressure is also being brought to bear on a broader level due to the need for price controls and an increase in low-cost housing. But at the same time, local governments are motivated to release more land as they need to raise capital to support infrastructure projects.

All told, Epstein doesn't expect the China private equity real estate story to slow. "There always has been and always will be interest in real estate in China and there will always be ways in which capital is pooled to invest in it," he says.

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