Chen Xiaoyang, an investor from Zhejiang Province, has decided to sell all of the three apartments she bought in Shanghai last year, even if she could make more money should the city's property prices rise even further than they have over the past three years.

Chen is eager to quit the city's housing market over concerns that government policies could bring an end to the spate of price rises.

She is not the only person in Shanghai to have made such a decision. Sales of second-hand apartments increased by 15 percent in the city after the People's Bank of China raised the housing loan rate on March 17th, according to statistics from the Shanghai Branch of Midland Realty, a Hong Kong-listed property agency.

This followed hot on the heels of steps taken by the Shanghai municipal government to curb property speculation and increase the supply of medium and low-priced housing.

On March 7, the local government introduced a capital gains tax of 5.55 percent on homes being sold within a year of their purchase.

Analysts said this measure was taken to discourage speculative investment, seen as the major reason for the city's rocketing house prices.

Such is the surge in prices, that many local residents have complained that it is now almost impossible for them to purchase apartments in the city.

The average price of local residential buildings was 6,385 yuan (US$772) per square metre in 2004, a year-on-year increase of 14.6 percent, while the average per capita disposable income of the Shanghainese only increased 12.2 percent over the same period, according to official statistics.

Li Xu, an analyst at the city's Hanyu Property Agency, pointed out that price rises in downtown Shanghai are actually much greater. Prices of prime location apartments surged more than 20 percent in the first two months of this year.

Property prices rose by a national average of 10.8 percent year-on-year in the fourth quarter of 2004, accelerating from an 8.6 percent gain in the previous three months, government figures showed.

Excessive demand relative to the local housing supply is the real reason for the high prices, said local property experts.

A total of 32.33 million square metres of new apartments were under construction in 2004, while only 30.76 million square metres of housing has been completed.

Industry insiders said the situation became worse as speculators swarmed into the city in the hope of benefiting from Shanghai's real estate boom.

Shanghai municipal government spokeswoman Jiao Yang said that foreign buyers only accounted for 4 percent of the local real estate market, while local residents made up 80 percent.

"Local authorities' recent move to increase the supply of medium and low-end residential housing will greatly help satisfy the demand of ordinary wage earners and stabilize the city's housing prices," remarked Yin Kunhua, director of the Property Research Centre of Shanghai University of Finance and Economics.

The city government has unveiled a plan to construct 20 million square metres of apartments for low and middle-income residents by the end of this year.

According to the plan announced last week, all these apartments will be priced below 3,500 yuan (US$424) per square meter, and their sale is restricted to residents moved to make way for urban renewal projects and low-income families.

The government has also vowed to establish a low-rent housing system, designed to provide accommodation for poor urban residents living in less than nine square metres per capita and with a monthly income of less than 290 yuan (US$35).

"The beneficiaries will be extended to 180,000 households from last year's 135,000 by the end of this year," said Jiao.

Analysts said such moves, along with the government's previous efforts to regulate property transactions, would strengthen the authorities' efforts to slow the city's property price hike.

Shanghai has been taking steps since last year to make housing sales and project information available online, increasing the transparency of the real estate market.

Local authorities also punished three developers late last month for including inaccurate profit data in contracts and established an inspection team to check illegal practices such as misleading buyers by disseminating wrong information among real estate agents and developers.

(China Daily April 7, 2005)