With amiable weather and beautiful scenery, Hangzhou is known as one of the best places to live in China. It has also been a paradise for property developers and investors in the past few years as property prices have gone through the roof.

However, the capital of Zhejiang Province may soon lose its appeal for property speculators as the municipal government is planning tough measures to stabilize soaring house prices.

The city government will build 1.5 million square meters of affordable housing for middle and low-income families this year, 1 million square meters of which will cover the needs of households relocated because of demolition, said Zhang Lianghua, vice-director of the Hangzhou Construction Committee.

"We are trying to let most Hangzhou people have a place to live and enable more people to buy a house," said Zhang.

In addition, the city plans to offer 2 million square meters of land for other residential buildings this year to ease the housing shortage, Zhang added.

Followed the central bank's move to raise mortgage lending rates on March 17, the local government has waived value added tax on sales of apartments purchased from buyers' work units at low prices since April 1.

This measure aims to stimulate the second-hand apartments market and balance supply and demand, Zhang said.

The supply of second-hand apartments has seen a huge increase after a series of policies taken by the central and local government, according to a survey conducted by local media.

Gongzhong Housing Company, a famous local intermediary agent, had 50 percent more second-hand apartments for sale in the last week of March compared to the previous two weeks.

Wang Zhongxi, a Wenzhou lawyer who bought two apartments in Hangzhou two years ago, is one of many property investors who are not local residents and decided to sell their houses immediately after the government decisions.

"It is not the direct effects of the central bank's adjustment on home mortgages that made me in a hurry to sell my flats, but the move reflects that the government is determined to deflate house prices," Wang said.

Many of Wang's friends were considering selling their houses, fearing a possible future slump in property prices.

However, Zhang believes any further price surge will be stabilized by the government's efforts to regulate the property market.

The government continues to improve a transparent website, established last year, which provides housing sales information for developers and buyers.

Property prices in Hangzhou have been gaining steadily since 1999.

The average price of local residential buildings reached 5,802 yuan (US$696) per square metre in 2004, an increase of 12.4 percent on the previous year, and the price of downtown houses exceeded 8,000 yuan (US$960) per square meter last year, according to statistics from the Hangzhou House Administrative Bureau.

The serious imbalance between housing supply and demand leads to the high prices, said Xu Jianfeng, an expert from the Economic Research Institute under the Zhejiang Academy of Social Sciences.

Moreover, speculators who hoard a large number of new apartments, waiting for price spikes, fuel the high prices, Xu said.

Foreign buyers have already emerged in Hangzhou and other cities in Zhejiang Province, Xu added.

Industry insiders said it was impossible to buy new flats in the city's urban district as new apartments are sold out before public sales.

As many new houses are left unoccupied by speculators, experts suggest the government should impose a tax on property management and value added tax on property to increase speculators' costs.

Zhang confirmed that tax is a useful tool for the government to curb soaring house prices, but whether the local government will impose a tax on house sales again is still unknown.

The local government introduced a personal income tax of 20 percent on second-hand house sales on January 1, 2004 to rein in soaring prices.

However, prices did not decline and consumers had to pay even more as sellers made use of rising demand to inflate prices.

On September 1, 2004, the tax policy was suspended because houses remained so expensive.

"People's demand for houses - either for their own residence or long-term investment - will remain strong in the future with the growth in people's income," Xu says.

Xu said the government should take measures to curb speculators' investment in the sector, so as to stabilize the market.

(China Daily April 13, 2005)