The government of Qingdao City in east China's Shandong Province adopted various emergency measures to curb the huge rise in property prices in early March, but they have proven to be less effective than expected so far, according to local sources.

A recent report from the National Bureau of Statistics showed that in the fourth quarter of 2004, Qingdao's housing prices rose by an average 19.8 percent from the same period in 2003, the largest hike among the nation's 35 large and medium-sized cities.

Along the city's coastline a group of top-grade property projects sell for more than 10,000 yuan (US$1,209) per square metre.

Last year in the four central districts of downtown Qingdao the average property price reached 4,384 yuan (US$530) per square metre, 11.2 percent higher than in 2003, according to statistics from the Qingdao Real Estate Development Management Bureau.

Qingdao's property prices are almost on a par with Guangzhou, while the average income of salaried workers is just half that of the capital of Guangdong Province.

Wu Gang, director of the Real Estate Bureau, told China Daily that two factors have led to the unreasonable increase in housing prices.

One is the lack of a sufficient housing supply. Surveys show that in the south of the city demand far exceeds supply. In this area property was selling for as much as 20,000 yuan (US$2,418) per square metre.

Even in the suburb of Licang house prices have jumped from less than 2,000 yuan (US$242) per square metre three years ago to 3,000 yuan (US$363) to 4,000 yuan (US$484) per square metre.

Property speculation and enthusiasm for property investment is the other main factor to have exacerbated the supply shortage and inflated prices, Wu said.

The owner of a 35-square-metre house in the south of the city spent just 95,000 yuan (US$11,487) on the property in 1999, but has since seen its price tag top 200,000 yuan (US$24,183).

Insiders say that property bubbles in Qingdao started to form six years ago. July, 2001 was a real boom time, following Beijing's winning bid to host the 2008 Olympic Games, as Qingdao became the only partner host city as the venue of some of the watersports.

The news stimulated a bullish surge in house prices, said Liu Gang, deputy general manager of Qingdao 21st Century Fixed Assets Co Ltd.

Attracting South Korean purchasers has also sped up price increases. Last year the city arranged for more than 10,000 South Koreans to visit Qingdao, and some housing projects have been advertized in Korean.

More than 50,000 South Koreans live in Qingdao, just a one-hour flight away from South Korea, attracted by lower living costs.

Several housing projects developed with the swarm of South Korean investors in mind have been selling very well, with high-class apartments changing hands at about 10,000 yuan (US$1,209) per square metre, twice the price of two years ago.

From early March Qingdao has finally begun to launch initiatives to put the brakes on house prices, mostly aiming to discourage speculative investment.The measures included a 20 to 30 percent tax slapped on properties being sold within a year of purchase, stopping mortgage transfers and ensuring land is set aside for the development of medium and low-priced housing, the Qingdao Real Estate Development Management Bureau said.

"Mortgages will be limited for high-class commercial houses and those purchasing more than two houses; newly purchased commercial houses cannot be sold within a limited period," said Wu.

The district of Laoshan has been levying a 20 percent tax on the added-value portion of prices agreed in second-hand housing deals.

Meanwhile the official said that the city will begin the construction of 50 million square metres of new apartments this year, with almost half expected to be completed within the year. The official said 60 percent will be common commercial housing.

However, local sources say the policies have had little or no impact on the housing market, with no obvious change in price or sales volume.

"Large housing developers and major real estate agents should be subject to stringent management to avoid over-speculation," suggested the Qingdao Statistics Bureau in a report on last year's housing market.

"In Qingdao the real speculators are those "giant speculators"," said Zhang Guanghong, president of Qingdao Commercial Bank. "They buy a whole building or half of a housing project then sell it off at higher prices; some build and sell houses once someone else has acquired the land, and they jointly get loans from banks but only sign the land-owner's name on the agreements."

Insiders say that there are more than 700 property developers in Qingdao, but only a third of them have land, so the rest are purely speculators.

"The new policies have little influence on these speculators since their dealings are not subject to inspection by banks or taxation departments," said Zhang. "It is these large speculators that play the biggest role in boosting price rises."

(China Daily April 15, 2005)