Shanghai has surpassed Beijing to become the country's most expensive housing market when its average price per square meter surged more than 24 percent in 2003, according to a report on the real estate sector by the National Bureau of Statistics.

As soaring numbers will likely result in runaway investment in the city's housing market, the local government will have to implement new disincentives to curb excessive development, analysts say.

The average price for Shanghai's residential dwellings topped 5,118 yuan (US$616) per square meter in 2003, up 24.2 percent from a year earlier, said the report which was published over the weekend.

The national figure for the average housing price was 2,379 yuan per sq meter in 2003, up 3.8 percent from a year earlier.

The city was also the fastest-growing housing market in 2003, the report revealed.

"The Shanghai property market will maintain its upward momentum in the long term," said Hua Wei, deputy director of Fudan University Real Estate Study Center. "But some measures must be taken to avoid wild fluctuations which could hurt the industry."

Investors from other parts of China and foreign countries largely drove up the city's housing market as they bet on further price rises when Shanghai hosts the World Expo in 2010.

Apartments worth 110.9 billion yuan were sold last year, up 50 percent year-on-year. A total of 23.1 million square meters were transacted, up 28.8 percent.

A hefty housing price rise will eventually lead to oversupply and panic selling, analysts cautioned.

Cognizant of the trend, the city government has vowed to rein in development of the industry.

Cai Yutian, director of the Shanghai Housing and Land Administrative Bureau, the local property industry watchdog, said earlier this year that the city government would step in and cool the red-hot market.

He said housing prices in 2004 should not increase more than 12 percent from a year earlier.

The city government rolled out new rules earlier this year to prevent investors from selling houses under construction.

Developers are not allowed to sell apartments until the building is topped out.

The government has also tightened regulation on mortgage loans.

According to the rules, homebuyers could only buy one apartment using loans while they are barred from borrowing money from the banks to buy a second flat.

The Shanghai Housing Index, the benchmark of new housing prices, grew by a scant 0.45 percent in January, compared with 33 percent in 2003.

The city government could also control price hikes through land allocation, industry analysts say.

(eastday.com March 15, 2004)