Editor's note: China's Bubble is a four-part multimedia series on an emerging threat to China's booming economy — a residential real estate bubble, particularly in the business and finance hub of Shanghai. The series also explores one of Shanghai's hottest residential developments, and examines how one unique social custom is driving prices even higher.

SHANGHAI, China — “Do foreigners think there’s a great real estate bubble in China?” Mr. Cai, a Shanghainese millionaire, wants to know.

Cai, 46, owns three homes in Shanghai. He and his family live in an apartment that he bought in the late 1990s for RMB6,000 ($882) per square meter. Ten years later, and for the same price, he purchased a second home — a 1950s brick and wood house built by a nearby university to house visiting Soviet professors — and moved his aging parents into it.

Last year, Cai invested in a third home for RMB20,000 ($2,941) per square meter in the city’s central Xuhui district, or more than triple what he paid a decade ago.

“Every year there are more and more wealthy Chinese. What are they going to do with all their cash?” said Cai. “You can only buy property or start a company. Property is the safest way to go.”

Thanks to China’s rapid economic growth, Shanghai has an abundance of people like Mr. Cais — wealthy entrepreneurs and white collar workers who have amassed more cash than they can invest. Apart from placing savings in a bank account with a very low interest rate or buying securities on a volatile market, there are few options that seem as lucrative to them as real estate.

In an echo of a pre-bust U.S., Shanghai’s housing market has yet to experience a major downturn. Over the last five years, the city’s average property prices have doubled to a record RMB14,986 ($2,204) per square meter, according to Shanghai’s Uwin Real Estate Information Services, vastly outpacing the rise in middle class income.

Some analysts view the surging real estate sector as an unsustainable bubble that poses grave risk to China’s economic growth and stability.

Worse, when people buy homes as a form of investment, it diverts investment into less productive areas, while driving up costs for the vast majority of Chinese who are buying homes in which to live.