With austere measures still taking their toll on residential investments, Shenzhen's home prices have fallen about 40 percent after record-setting sales in 2007.

During the "Golden September", buyers were not moved by the deep price cuts made by developers. Sales volume continued to decline in the third quarter by 20 percent to about 800,000 sq m from the previous quarter.

However, the average price has risen 11.5 percent to 13,550 yuan per square meter, quarter-on-quarter, propelled largely by the sales activities of the high-end properties located in the eastern part of the city.

Reflected by a higher average price with lower sales volume, the market for high-end homes bucked the downward trend as a separate marketplace with its own factors.

In fact, sales of luxury houses in the past three months have pushed overall prices up, whereas prices of the middle and lower-end sector have actually softened, currently estimated at less than 12,000 yuan per square meter.

Even though the supply of luxury homes has increased considerably, the high-end market generally foresees that future land releases for low-density residential projects, particularly detached houses and townhouses, will be rare.

Another factor pushing sales is that buyers who survived the stock crash have turned to this market by snapping up luxury villas on the back of their promising value.

Not withstanding all the villa purchases, the mass market is expected to endure some more testing times. Properties outside the economic zone border even will see prices erode.

Over the last two decades Shenzhen has emerged as the most important city in the Pearl River Delta (PRD) region. Last year, the city's GDP reached a record high of 676.54 billion yuan, an increase of 14.7 percent over 2006.

Shenzhen's economic output is ranked seventh among the 659 mainland cities, and it is comparable to that of a medium-sized province in China. In 2007, Shenzhen's GDP per capita was 79,221 yuan, ranking seventh among 659 mainland cities.

In the first eight months, Shenzhen's ports handled 144.6 million tons of freight, an increase of 13.2 percent year-on-year. Shenzhen's port cargo throughput is China's second largest, and the world's fourth largest.

Shenzhen's economic fundamentals are sound. But its rapid economic growth was overtaken by soaring property prices.

In 2002 and 2003, property prices increased just 2 to 4 percent. After that, home prices began to take off, from less than 10 percent in 2004 and 2005 to the stunning 40 percent growth in 2006 and 2007.

Determined to deflate the housing bubble, the central government has imposed a host of measures to tighten second-home lending and limit foreign investors to rein in the housing frenzy. Of course, Shenzhen is hardest hit.

For policy coherence and for sustainable home prices, alteration in policy direction by the end of this year is unlikely.

After all, the ultimate burst of the housing bubble in the US may already have warned China of its disastrous impact on the economy if housing prices become out of the reach of the majority.

The author is deputy managing director of Vigers Asia Pacific Holdings.

(HK Edition 10/09/2008 page3)