THE soaring prices of the real estate market has become one of the hottest topics at the city's ongoing Congress meeting.

Both the unprecedented coverage of the problem in the Mayor's newly delivered government work report and the lengthy seminar held by Congress deputies and officials on the issue are sending a strong signal that cooling down the real estate market will be a key task for the municipal government in the new year.

While emphasizing that the local real estate market is still healthy, Vice-Mayor Yang Xiong also admitted to Congress deputies during last Tuesday's seminar that the market had "become a little too hot".

The ideal situation, in Yang's eyes, would be for the real estate sector to maintain a stable growth trend in the new year, rising below the rate of GDP, which would be below 10 per cent, but of course this is something the government cannot totally control.

Soaring prices

Statistics show that the average price of real estate in the urban area reached 5,830 yuan (US$702) per square metre in 2003, rising some 22 per cent over the year before. In some central downtown areas such as Jing'an District, the average price has even exceeded 10,000 yuan (US$1,210) a square metre - a rise of more than 50 per cent. Yet the city's GDP growth last year was "only" 11.8 per cent.

Although officials from the real estate sector kept reminding people that prices are determined by the supply and demand, such shocking rises seem obviously unsustainable.

"If continued, they will inevitably lead to a large scale price collapse," said Congress deputy Ji Baohong, who is also the boss of the Shanghai Wangyuan Real Estate Company.

Last year the city sold a total of 23.06 million square metres of residential floor space, a figure comparable to the new space the city built, while in 1999 the figure was just 5 million.

However, among the largely influx of buyers some 40 per cent are non-locals, either from foreign countries or from other provinces, said Hua Wei from the Real Estate Research Centre with Fudan University.

Even among local buyers, many are non-native young people who have obtained residential status in the city and found work here. Local buyers accounted for only 36 per cent of last year's residential demand.

"The demand from outside has actually become the dominant portion to the city's real estate market," Hua said. "It is different from the markets in other areas, which mainly cater to the demand of local residents."

Even among the small number of native buyers, a large proportion of sales went to those who have had to find new accommodation due to the city's reconstruction campaign.

"Some 30 per cent of these people are so poor that they are not even qualified for loans from banks when buying their new houses," said Cai Yutian, director of the Shanghai Housing and Land Resources Bureau.

The urban real estate market, breaks down as follows: 76 per cent went to big units with sizes over 100 square metres in floor space, and 46 per cent went to expensive ones priced over 5,000 yuan per square metre, could only seem like an apple they could never touch.

The city's medium and low priced houses are mostly found in suburban areas near the outer-ring road. Inconvenient transportation and relatively poor infrastructure compared with the downtown area have aroused complaints from locals, while also restraining their enthusiasm for property purchases.

"This will no doubt become a factor choking the future development of the local real estate market," Hua said. "After all, it is only the demand from local residents that can be taken as the base for the growth of the regional market, not that of foreign buyers."

Statistics show that annual disposable incomes averaged 14,840 yuan (US$1,792) for local urban families, compared to 6,650 yuan (US$803) for rural families.

'Mission impossible'

Admittedly, the booming real estate market over the past few years has played an important role in accelerating the city's GDP growth. Statistics show that some 7.4 per cent of the city's GDP last year was based on real estate, a figure equivalent to the city's pillar industry of automobiles. Real estate contributed 1 per cent of the city's 11.8 per cent GDP growth last year, accounting for no less than 30 per cent of revenues in the urban area.

"However, if all consumer spending went into house purchases, who would buy other things in the market? The country's call for an increase in domestic consumption would be a mission impossible," said Sheng Zhengde, a professor from Shanghai Finance College, whose speech won warm applause at the seminar.

Although officials denied that the city's real estate market is in a dangerous bubble, they are thinking of ways to slow its further expansion.

The vigorous construction of low-priced housing in the range of 3,000 to 5,000 yuan per square metre, which started last year, is one solid measure designed both to solve the shortage of lower-end property and help bring down overall prices.

At the same time, the People's Bank of China also released two plans, one to govern the granting of loans to real estate developers and home buyers, and the other to introduce stricter controls on the land supply for villas construction, with the aim of restricting the quantity of high-end property.

Even more encouraging are plans by the city to ban speculation on the forward delivery on houses and establish an early warning system for the housing market.

Statistics show that the speculative house buying in Shanghai accounts for 16.6 per cent of the total, close to the international warning line of 20 per cent.

Yet according to business insiders, if other possible speculations concerning houses unoccupied for more than six months are included, the figure may well already have exceeded 16.6 per cent. It is estimated that among higher-end houses priced beyond 7,000 yuan, the speculation rate may even have reached 39 per cent.

The large number of cancellations among those queuing for forward delivery housing after the news about the new policy was revealed may serve as an indication. It is said that some 50 per cent of buyers for new houses in Jiuting of the Songjiang District have cancelled their orders.

However, some real estate developers argued that such government regulation is unnecessary, and also contradicts its commitment to reduce its interference in the market.

Some also expressed worries that the stream of new government policies in regard to the market may lead it to the other extreme, triggering a property collapse such as that still afflicting Hong Kong.

They cited as one example the fact that not long ago the country issued an order to control land leasing for the construction of villas, which only caused an even greater increase in prices of the existing villas due to the shorter supply.

Some also question the legality of the city's new policy to ban speculation, as it seems unreasonable for the government to allow people to buy while forbidding them to sell.

Despite all the questions and debates, in the concluding report given by the vice mayor before the end of the seminar, it was clearly shown that the government is determined steps to cool down the market, which may include a more transparent bidding system for land leasing, stricter control over the selling of forward delivery housing, and the provision of information about the market to house purchasers.