The average price for new homes in China increased 3.4 percent in the fourth quarter of last year from the same period in 2001. The growth rate was 0.5 percentage points lower than that of the third quarter, said a report co-published by the State Development and Planning Commission and National Bureau of Statistics.

The report indicates growing regional disparity in housing prices, with the cost of new homes in northeastern and southern China falling, while prices in coastal cities and western China continue to climb.

The slow-down was mainly due to lackluster housing market in northeastern cities like Changchun, Shenyang and Dalian, where low incomes inhibit demand. Housing prices in those cities decreased by up to 3.5 percent during the fourth quarter.

Prices also fell in southern cities such as Shenzhen and Guangzhou, although for very different reasons. The two cities are home to some of the highest housing prices on China's mainland, but an oversupply of new homes seems to have finally burst the region's real estate bubble.

Prices in Shenzhen, where new homes cost 6,364 yuan (US$767) per square meter, fell 0.1 percent during the quarter, while the average price tag in Gaungzhou fell 0.4 percent to 5,572 yuan per square meter.

Large coastal cities such as Shanghai, Ningbo and Qingdao all reported healthy increases in new home prices during the quarter. Prices in Ningbo surged 17.8 percent during the period, while price tags in Qingdao jumped 11.5 percent.

Shanghai saw average housing prices jump 9.7 percent during the period to reach 4,553 yuan per square meter.

A strong government push to develop western China helped boost prices in two of Gansu Province's largest cities during the quarter. Prices in Lanzhou rose 5.4 percent, while rates in Yinchuan were up 3.5 percent.

While some analysts warn of bubbles in several large cities, including Shanghai, others expect prices to continue to climb.

Albert Lau, managing director of FPD Savills International Property Consultants, said prices are likely to increase for at least one more year.

"When you look at China's encouraging macroeconomic figures, such as its GDP growth, investment demand will continue to rise," said Lau, who notes that many of the prices listed in the report seem far too low.

"And when people's living standard improves, they tend to buy a second apartment to rent out."

With supply continually increasing, rents will certainly fall in the long run, said Deng Wei, an analyst with the Institute of Real Estate at Shanghai University of Finance and Economics.

"Too many investors will harm the real estate market by shoring up prices and creating a bubble," said Deng.

Beijing is proof of how quickly a real-estate bubble can burst and how badly investors can get burned. Housing prices in the capital rose for more than three years, but dropped 1 percent in the fourth quarter of 2002. The fall was due to an overheated market that saw investment jump by more than 50 percent last year, analysts say.

(eastday.com January 24, 2003)