The move came less than two weeks after Shanghai's municipal government imposed a 5.5 per cent capital gains tax on properties resold within 12 months of their purchase.

With some upmarket property prices now rising as fast as 5 per cent to 10 per cent a month, however, the new measures are unlikely to deter speculators.

'I don't think a slight increase in mortgage interest rates will have any significant impact,' said Alva To Yu-hung, a research director at property agent DTZ Debenham Tie Leung.

The central bank's action was more of a warning shot than an attempt to cripple property speculators. Removing mortgage loan subsidies will only push up base mortgage lending rates by about 0.2 percentage point. Raising the minimum initial payment to 30 per cent is also unlikely to affect demand as few banks offer mortgages for more than 50 per cent of a property's value.

The danger is that speculative buyers will ignore the red flags and continue to push prices higher, forcing the authorities to resort to harsher measures to slow the market later this year.

That could trigger a market crash, with harmful effects on the broader economy, said Dong Tao, the chief regional economist at investment bank Credit Suisse First Boston in Hong Kong.

'The biggest risk to the Chinese economy in 2005 is the Shanghai property market,' Mr Tao said.

Although the property market makes up only 8.5 per cent of Shanghai's gross domestic product and about 5.5 per cent of the entire mainland's GDP, its indirect contribution is far greater. The construction boom is fuelling heavy demand for steel and cement.

Property purchases are creating rising demand for furniture and appliances, generating sizable fees for lawyers and estate agents and creating demand for bank lending.

Altogether, Mr Tao estimates, the property market could contribute as much as 20 per cent of Shanghai's GDP.

Other analysts say the true figure is more like 25 per cent. If so, Shanghai's economic miracle is deeply vulnerable to any slowdown in the real estate market, which explains why the authorities have so far shied away from more vigorous action to check speculation.

Ultimately, they may have no choice.

With about 40 per cent of property purchases in the city now funded by outside money, and utility bills indicating that as many as 25 per cent of central Shanghai flats are standing empty, Mr Tao has no doubt that the market is in the middle of a speculative bubble.

If so, it may only take one trigger event for the hot money investors to conclude that prices are more likely to fall than rise. When that happens, there will be a rush for the exit and prices will collapse.

The spark could be an across-the-board interest rate rise aimed at cooling the broader economy. It could be a corruption crackdown that reveals a series of scandals in the market. Or it could be the introduction of tougher administrative measures against speculators - some analysts are calling for a far higher capital gains tax.

Whatever it is, the longer it is delayed, the more disruptive the impact is likely to be on the wider economy of China.