On the other hand, the rise in supply as a result of the sharp increase in investment and developers has generated fears of a repeat of the bursting of the property market bubble in the mid-1990s. As a result, various reforms were recently introduced at both the local and national levels to curtail runaway property prices and an oversupply situation.

These include allowing bank mortgage lending and issuing presale permits for high-rise developments only when construction is two-thirds completed and when the building structure is completed for low-rise projects. This effectively raises the capital commitment required for property development, giving large-scale developers with greater financial strength and economies of scale an advantage over the small-scale developers.

Real estate transaction fees, such as deed and registration costs, are also being standardised and reduced to ensure that illegal fees often imposed by local authorities are eliminated. Authorities in cities such as Shanghai, Shenzhen and Guangzhou have also introduced regulations stipulating that land-use rights for all residential property developments be sold by auction or tender. This practice is likely to spill over to other Chinese cities.

Going forward, several trends are emerging which will have a positive impact on the property market in China.

Amongst these is an increasing demand by Hongkongers for apartments in China. It is estimated that nearly one in four properties bought by Hongkongers in 2001 was on the mainland. Most are just across the border in Shenzhen, where prices are 30% to 40% below those in Hong Kong districts, and serve either as primary homes or holiday homes. Around 50,000 Hongkongers already live in the Pearl River Delta, while another 40,000 have secondary properties in that area. As restrictions on border crossing eases further, more Hongkongers will consider buying properties in Shenzhen and other parts of the mainland.

At the same time, China is in the process of urbanisation, with more people migrating from rural areas to the city. The rate of urbanisation is forecast to increase from around 34% currently, to 45% by 2010. This will translate into huge demand for residential space in the cities, with an estimated 300 million sm of residential space required annually.

China also plans to increase the per capita living area of its urban households from 13.6 sm as of end-2000 to 22 sm by the end of 2005. To achieve this, the central government plans to increase civil servants’ pay by another 30% to propel urban income growth. This will help boost housing demand as increased affordability enables more people to buy homes for larger living spaces and better living conditions.