Page last updated at 23:03 GMT, Monday, 10 May 2010 00:03 UK

China seeks to tame property boom

Han Rui
Han Rui is struggling to afford a home for himself and his girlfriend in Shanghai

By Chris Hogg
BBC News, Shanghai

The Chinese government is desperately trying to cool down an overheating property market.

New measures introduced in the past few weeks restrict mortgage lending, increase land supply and stop developers from hoarding apartments to push up prices.

In the biggest cities like Beijing and Shanghai, prices have risen so much that for many people most properties are now unaffordable.

But analysts say house prices are unlikely to fall this year, despite the tightening measures adopted by the government.

Last week the annual report on the state of the real estate industry by the Chinese Academy of Social Sciences warned that rocketing house prices had become the most important obstacle to that sector's healthy development.

Here in Shanghai they rose 14% in 2008 and again in 2009.

However, Wang Yong, a young estate agent in Shanghai, insists that should not deter buyers.

Estate agent Wang Yong
Estate agent Wang Yong says now is the best time to buy

"I've sold seven apartments on this estate alone in the last month," he says as he shows another potential customer around a property.

"Now is the best time to buy. Our analysis of the market suggests it's very likely prices will continue to rise."

His salesman's patter is persuasive as he takes the 24-year-old professional he is showing around from room to room.

But it is soon clear the place is well beyond the means of the young man, Han Rui.

Mr Han is saving hard - half his net salary each month - but a two bedroom place can cost 20 or 30 times the average annual wage here at the moment.

Currently he shares a cramped company dormitory with his girlfriend and a colleague from work.

The walls are bare. The couple share a narrow single bed.

Marriage plans

He says buying a property is not a choice, it is a necessity.

If he loses his job they will lose their home. He wants to get married in three years time so he has to become a homeowner.

"I am a very traditional person," he says.

"I feel that when you get married you must own an apartment. If not the marriage is meaningless, because you can't offer each other security.

"In fact, my girlfriend's parents might not allow her to marry me unless I have one," he adds.

A new home for a new couple is so important that most families will do whatever they can to help to them pay for it.

The demand for homes is much higher than supply, so that guarantees my investment
Home buyer Pan Feng

That is one reason China's property market might not turn from boom to bust as many fear. Demand is still strong here.

Pan Feng has just bought a new place. Her family helped pay for it so she does not have a mortgage.

She is convinced the need for new homes in Shanghai will mean they will not lose money.

"The demand for homes is much higher than supply, so that guarantees my investment," she says.

"Only when the government gets everyone a place of their own will prices start to fall - in 10 or 20 years' time maybe.

"If you and I both need something how can the price fall?"

She is probably right.

Prices might have been rising for some time now but the market is much more stable here than it is in many Western countries, according to Andy Rothman, China Macro Strategist at CLSA Asia Pacific Markets.

"Here one quarter of all buyers are paying all cash, the minimum down-payment is 20% and our estimate is about half of buyers have to put 30% to 40% cash down," he says.

"We just don't have the leverage problems that took down markets in other parts of the world."

Han Rui came to Shanghai from Hubei province in search of a better life.

He is confident a solution will be found to cool down the over-heating property market.

The government will in time start to make housing more affordable.

He does not know how long it will take but he is certain he will one day be a homeowner.

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