WORKING as a researcher in a local real estate agency, Li Xu was of those people who earned their bread from the soaring Shanghai real estate market.

Even Li couldn't help hoping for a collapse in the property sector when he wondered how he could afford an apartment in the city.

"Houses in the city are just too expensive,?Li said. "Something should be done.?

What Li expected may be well on the way, as local authorities?latest moves on the property market clearly show that more efforts will be taken to dampen speculation and to meet the demand of low-income families.

On March 7, authorities introduced a new profit tax on owners who sell their apartments within a year of purchase, said the Shanghai Tax Bureau.

A business tax of 5 per cent will be imposed on earnings from transactions in any properties held for less than a year, while an additional fee of 0.55 per cent will be levied on the construction of the city's infrastructure, river drainage and education facilities.

Previously, those who sold property were not required to pay tax while buyers paid 1.5 per cent of the property's value in deed tax and stamp duty.

"The new tax sends a clear signal that speculation in the property sector will be strictly restrained, as only apartments held less than one year ?an indicator of speculative behaviour ?will be subject to the tax,?said Huang Wei, manager of the R&D department of Shanghai-based Savills Co Ltd, a London-listed property firm.

"The tax will add only a little to the price of an apartment as the rate is not high,?said Tian Jinhua, senior account manager with the Shanghai Hanyu Property Agency.

"However, some of our clients have decided to sell their houses as soon as possible, fearing the government may take additional measures against speculation, which will drive prices down,?Tian added.

Skyrocketing prices

Property prices have been skyrocketing in Shanghai since 2003, and some analysts say the price surge is greatly reinforced by domestic and overseas speculators hoping to benefit from the city's red hot real estate sector.

Local residents have complained that the price surge in the city's apartments is far beyond their income growth, which makes an apartment increasingly affordable for ordinary salary-earners.

Zhang Yijun, an employee of a local State-owned enterprise, planned to buy an apartment worth 300,000 yuan (US$36,275) in the Baoshan District in 2003.

Unable to collect the down payment for the mortgage, he decided to put off his purchase.

When Zhang was finally able to accumulate enough money for the down payment in 2004, he faced a price that had surged to 600,000 yuan (US$72,551), double what he had intended to pay.

"However, my salary only increased by a few hundred yuan in the past year, an increase of about 10 per cent,?Zhang complained.

Official statistics show prices of residential buildings in Shanghai averaged 6,385 yuan (US$772) per square metre in 2004, up 14.6 per cent year-on-year, while the average disposable income per capita of the city dwellers increased to 16,683 yuan (US$2,015), an increase of 12.2 per cent over the same period.

Some experts say since remote areas untouched by the property boom, such as Chongming Island, are included in calculating the city's average housing price, housing prices in the downtown area are actually much higher than the figures suggest.

Nationwide, prices of new apartments climbed 14.4 per cent in 2004, while the average disposable income per capita of city residents increased by 7.7 per cent.

Countermeasures

"The low rate (of the new tax) will not cause an earthquake in the city's property market and it may keep the price growing at a proper pace,?said Du Jianfa, associate professor from the Real Estate Research Centre under the Shanghai Academy of Social Science.

Most analysts say the city's housing prices will continue to advance as long as demand exceeds supply and the recent surge in prices of building materials exert pressure in the market.

"Besides curbing inflation, the government should adjust the structure of the current property market, increasing the supply of mid- and low-end apartments,?said Du.

In addition to the new profit tax, local authorities have elected to expand the mortgage loan discounts for low-income families as well as speed up construction of low-end properties.

The city now provides mortgage loan subsidies for families with annual incomes below 16,683 yuan (US$2,010).

Qualified applicants can receive discounts of up to 15 per cent of the total mortgage for their first home purchase.

The ceiling for eligible properties was raised from 250,000 yuan (US$30,193) to 330,000 yuan (US$39,855) or from 3,500 yuan (US$422.71) per square metre to 4,500 yuan (US$543.48).

In addition, 8 million square metres of apartments priced below 3,500 yuan (US$422.71) per square metre will be put into the market this year while another 9 million square metres will commence construction.