Despite government efforts to reign in the housing market and a feeling among many investors that apartments and villas in Shanghai are overpriced, housing prices jumped by the fastest rate in eight years in July to set a record high, the Shanghai Real Estate Index Office reported yesterday.

The shanghai Housing Index rose 4.5 percent to 1,045 points in July, the office announced.

During the first seven months of the year, the index surged 18 percent, compared with the 15 percent growth in 2002.

"Investors here tend to jump in when the market is moving upward," said He Xiaochen, an analyst for the Shanghai Real Estate Index Office. "The faster the housing prices rise, the more they believe in the sector's growth potential."

Many people, including a considerable number of expatriates who used to lease apartments, have jumped into the market before prices go even higher.

The monthly report noted the definition of low-end housing has been raised to 5,000 yuan per square meter from 4,000 yuan (US$482) per square meter, while the apartments between 5,000 yuan and 7,000 yuan per square meter are categorized as mid-end.

The rapid growth in prices has defeated government attempts to curb the market.

On June 13, the People's Bank of China asked domestic banks to tighten controls on mortgages for luxury housing and lendings to developers.

"The central bank has left operational room for the local banks, as it's hard to define luxury housing simply by prices," said Alan Sun, a manager at Cushman & Wakefield Premas.

Despite the PBOC's regulations, banks are still competing with each other for mortgage customers, because "for banks, housing mortgages are the least risky asset," said Sun.

The country's lackluster stock markets are also partially to blame, as investors want to put their money somewhere that will offer a decent return, which to many means real estate, he added.

"No other place in East Asia has a better investment environment than Shanghai, which enjoys rapid economic growth," Sun said.

Housing prices aren't expected to fall unless a large amount of low-end housing is available, but a shortage of land has prompted developers to target high-end consumers, Sun noted.

While sun said he doesn't expect prices to fall in the short term, another analyst believed a bubble is building.

"No one is paying attention to the lesson from the bubble burst in Hong Kong and Beijing," said Qin Bing, a lawyer for Beijing's L&A Law Firm who specializes in real estate.

With property investors playing an increasingly important role in the market, the real demand has the risk of being distorted out of proportion, he said.

A few years ago, people queued up to buy apartments in Beijing. But now apartments that cost 48,000 yuan per square meter can't be sold at 12,000 yuan per square meter, Qin said.

Beijing's housing prices dropped 9.9 percent in the second quarter of this year to an average price of 5,697 yuan per square meter. Properties prices in Hong Kong have fallen by more than 50 percent over the past several years.

The number of Hong Kong people who are trapped in homes worth less than what they owe the bank is on the rise, according to the Hong Kong monetary authority.

(Shanghai Daily August 15, 2003)