Hangzhou, a scenic neighbor of Shanghai, has been characterized in recent months by its rapid rise in home prices due to a remarkable imbalance between land supply and home demand.

Being one of the first cities on the mainland to implement a policy of public bidding, auctioning and listing of land, Hangzhou has since seen its land-transaction prices rising due to the lack of construction land.

The government also offers housing incentives to encourage more people to establish their start-up ventures in Hangzhou.

All these have helped increase the urban population, pushing up home prices.

Sales of consumer goods in Hangzhou reached 117.7 billion yuan last year.

But to what extent has this purchasing power been translated into raw demand for high-end residential housing? In the fourth quarter of 2007, the residential market in Hangzhou saw a transaction volume of over 1 million sq m - up 23.3 percent year-on-year.

The average price reached 12,356 yuan per square meter, a year-on-year increase of 30 percent.

Although commodity housing prices were generally up, the number of transactions was down. One reason for the restrained demand is the tightening effects of government policies.

These government measures will continue to be absorbed, but new measures are likely to further clamp the property prices in the face of CPI expansion and more demand for affordable housing.

Nevertheless, home prices continue to be sustainable because of the scarcity of land. Of the 25 land plots released during the fourth quarter of 2007, only 13 were for residential use, with an average price of 6,934 yuan per square meter, which represents a jump of 5.6 percent year-on-year.

As the land market has been red hot, it's likely the land shortage will continue, especially in prime areas.

The market in the first two months of 2008 was slow compared with the vibrant performance in 2007. But Hangzhou experienced a March recovery similar to that in Shanghai.

The Hangzhou supply in late March clearly outstripped the February supply by up to four times.

The spectre of the government's tightening measures significantly brought the prices down on poor-quality houses in poor locations. Future sales performance of property projects will hinge on government policy in the short-term future.

However, judging from the recent surge in sales, buyer confidence is high.

The author is the general manager of DTZ (Hangzhou).

(HK Edition 04/24/2008 page3)