Shanghai Daily | 上海日报 -- English Window to China News

TEN years after her graduation from a local university, Sammy Yu, now an engineer at a joint venture telecommunications company in Pudong New Area, owns two apartments in downtown Puxi, though she is still paying off the mortgage on one of her homes.

In 1988 when she graduated from primary school, she shared a 6-square-meter bedroom with two of her elder sisters, while her parents lived in another 8-square-meter room.

"Can you believe that all I dreamed of at that time was just a study room of my own?" recalled the 33-year-old technician who now lives in a 96-square-meter apartment on downtown Yan'an Road with her husband. "You could never imagine how we suffered when my sisters and I had to do our homework every day on a very small dining table."

The couple bought their first apartment for marriage in mid 2000 and seven years later, they purchased their second, this time, a 93-square-meter apartment near Zhongshan Park, for the husband's parents, who, almost in their 60s, still had to share a toilet with their neighbors in an old six-story apartment in Hongkou District.

Yu's story is encouraging but by no means rare.

"Due to the rapid development of the real estate industry over the past 30 years, the per capita living space for Shanghai residents has reached an average 16.5 square meters by the end of 2007, more than tripled from the 4.5 square meters as of the end of 1978," said Yin Kunhua, a retired professor at Shanghai University of Finance and Economics who has been tracking the industry for decades. "It is indisputably a pillar industry for the local economy and has made significant contribution to the city's rapid development of urbanization as well as industrialization."

Actually, Shanghai didn't witness its first major real estate boom until early 1990s though some notable reforms and changes had already been made between 1978 and 1991.

Between 1992 and 1996, land-use right for 2,221 land plots - totaling more than 110 million square meters - had been transferred in the city which resulted in a huge capital gained that helped in the construction of infrastructure facilities and the renovation of old, dilapidated residential communities.

Investment in the city's real estate industry soared during the five-year period. It skyrocketed to 65.7 billion yuan (US$9.59 billion) in 1996, or accounting for 33.7 percent of total fixed asset investment for that year, from 1.27 billion yuan in 1992, or 3.6 percent out of that year's total fixed asset investment.

In 1996, 60.05 million square meters of properties, excluding those built for relocation uses, began construction in Shanghai compared with 4.32 million square meters that started building in 1992. Meanwhile, in terms of areas completed, 12.07 million square meters were done in 1996 whereas only 1.39 million square meters were completed in 1992, according to the Shanghai Statistics Bureau.

Also in 1996, Shanghai established its land reserve center, the first of its kind across the country, and initiated its local guidelines for a public housing fund program.

Two years later in 1998, Shanghai launched its own housing reform and started to encourage people to buy their own houses from the market, ending a long-existing welfare housing system under which people paid very low rent for their apartments offered by their employers.

Incentives to buy homes

Initiatives introduced at that time included the individual income tax rebate policy and a lower down payment requirement.

"The individual income tax rebate for home buyers proved to be a useful policy," Yin said.

Under the policy introduced to encourage people to purchase their own homes after the abolishment of the welfare housing system, those who bought between June 1998 and May 2003 were able to get back part or all of their individual income taxes levied during the period after their home purchase.

Also in 1998, the People's Bank of China, the central bank, said it would encourage individual home buyers to take out mortgages, including from commercial banks and the public housing fund, to purchase their own homes.

People covered by the public housing fund usually pay a certain amount of their monthly salary to the fund and their employers are required to match the amount their workers contribute. They will be able to use that money to purchase homes and can have access to a comparatively favorable lending rate from the fund.

The local real estate market developed rapidly between 2001 and last year. Investment in the real estate market jumped quickly during the first four years and then gained at a slower pace from 2005. Investment rose to 117.5 billion yuan in 2004 from 63.07 billion yuan in 2001 and increased moderately to 130.75 billion yuan last year.

In 2001, Shanghai launched an auction mechanism for the transfer of land-use right. Before that, the city's land plots were usually transferred through agreements. The auction mechanism was regarded as a major achievement made in the city's land-use reform, analysts said.

As a result of the rapid development, Shanghai's real estate market has become overheated since 2003 which then triggered a series of government measures to curb speculation.

In the latest local government effort, home owners are required to pay 5.55 percent sales tax on the profit if they sold their homes within two years.

Real estate developers, meanwhile, faced record high prices for land plots sold across the nation in the second half of last year, beating market expectations.