The city's housing market will likely encounter a mild correction this year with no major collapse expected while small and medium-sized apartments will be much sought after in the local residential market, industry experts have predicted.

"New residential properties might face consolidation in prices and volumes while the second-hand property market is supposed to be closely tied to the performance of the first-hand market," said Albert Lau, managing director of Savills Property Services (Shanghai) Co Ltd, a leading global real estate service provider. "Robust demand from end-users will continue to be the ultimate force to support the market as long as supply remains inadequate."

According to an earlier report released by Shanghai Youwin Real Estate Information Service Co, the city's land supply for residential uses dropped to around 20 million square meters GFA (gross floor area) in 2006 and 2007, as compared to 33 million, 28.88 million and 31.49 million square meters between 2003 and 2005.

As a result, only 21.12 million square meters of residential areas kicked off construction in 2006, a year-on-year drop of 15 percent. The downward trend continued last year when only 16 million square meters of housing projects began their construction in the city, a year-on-year fall of 24 percent.

In particular, Lau said small and medium-sized apartments will become the major types of dwelling in the local market soon due to government policy and on a "rather affordable" price concern.

In May 2006, the Ministry of Construction announced that the combined residential units below 90 square meters in terms of GFA should account for more than 70 percent of a project.

A recent CB Richard Ellis report showed that about 66 percent of land supply designated for residential use in Shanghai last year will be used to build units below 90 square meters.

(Shanghai Daily January 25, 2008)