Sophie Ye has recently sold her one-room apartment and earned about 50,000 yuan (US$6,024) from the deal.

The middle-income hotel manager bought two apartments, measuring 42 square meters each, last June for about 4,500 yuan (US$543.50) per square meter in Nanshan district in the west of the city, where the underdeveloped housing market is on the rise because of an improved road network and general environment.

As she expected, the value of her purchases kept rising. She sold one of the apartments for about 5,800 yuan (US$700.50) per square meter last month. She is keeping the other to rent out.

"It's not bad, at least the return is better than saving the money in the bank or investing it in the stock market," Ye joked.

However, the recently announced series of government policies aimed at curbing speculation in the housing market has stopped her from making further investment plans.

"I am an investor rather than a speculator, but the new policy may bring in some uncertain elements to the housing market and I'd better wait and see," she said.

Both government studies and industrial research have found that only 10 percent of the house buyers in Shenzhen are investors, including a very small group of speculators. The remainder intend to live in the homes they buy.

Despite the rational composition of the market, which leaves little room for speculators to maneuver, the government has recently discovered a misleading advert for a residential development, in which the developer used the municipal government's name and a guarantee of "8 percent annual return" to attract buyers.

The government realized that malpractice on the part of some developers is still undermining the housing market, and has decided to enforce more stringent measures.

On March 31, the city's housing authority announced a ban on all internal reservations at developments without acquiring pre-sale permits starting from April 1.

Internal reservation is a wide-spread marketing plan. Property developers allow potential buyers to exchange 10,000 to 20,000 yuan (US$1,208 to US$2,415) for the right to have priority when choosing an apartment as soon as the development is granted a permit allowing homes to be sold.

Although developers and some estate agents argue that internal reservation is a method to test the market so as to set prices in line with demand, the government believes it creates a false picture of demand overtaking supply, which raises prices and tricks buyers into irrational purchases.

On April 5, the government introduced a new regulation and severe punishments to crack down on speculative activities in the housing market. Developers are required to leave relevant documents with the housing registration department 15 days after a contract is signed, which cannot be changed or removed barring special circumstances.

Shortly after the regulation was issued, the housing authority made market data freely available by posting information concerning all 856 approved developments since March, 2001 on its official website, which it updates every day.

"The government's efforts, though a little rushed, have laid a firmer foundation for the healthy development of the housing market here," Andy Lee, general manager of Shenzhen Centaline Property Consultants, a branch of Hong Kong-based estate agent Centaline Property, told China Daily.

The legal environment helps foster some of the larger, regulated property developers while the small ones, which are more likely to break the law because of a funds shortage, will try to grow stronger or go bankrupt, he forecast.

"In the short term, both developers and buyers will be affected since the developers will ponder new marketing schemes while buyers will put their plans on hold amid market uncertainty, but the overall upwards trend won't be stopped because the market is already very solid and fuelled by strong demand," said Lee.

He predicted the average house price will grow by about 5 percent this year, a similar rise to last year's 5.28 percent.

Luo Shoukun, general manager of WorldUnion Properties Consultancy (China), agrees, saying the new policies gave a warning to developers that they must abide by regulations to maintain a stable market.

"The government's determination to create a more ordered market will further intensify buyers' confidence," he said.

The housing market in Shenzhen ranked second from bottom among 37 large and medium-sized Chinese cities in terms of housing bubbles in a recent survey by a local research institute connected to the Ministry of Construction. This means the market is healthy, with little risk of speculation.

According to official figures, about 8.5 million square meters of residential property was pre-sold in 2004, up 12.5 percent from a year ago, which was mainly driven by the influx of about 400,000 to 500,000 people each year, the rising disposable income of residents and the desire for better living conditions, said Wang Feng, head of research at the local land bureau.

The average housing price rose by 5.28 percent to 5,980 yuan (US$722.20) per square meter last year from the previous year.

(China Daily April 19, 2005)