In a recent analysis of the mainland real estate market, the Chinese Academy of Social Sciences (CASS) said the domestic market would remain overheated this year as the central government struggles with reforms to ensure sustainable growth, including curbing property speculation which has helped fuel commodity price surges.

CASS said 18,000 second-hand flats were sold in the first half of last year, up 145 per cent from the year-earlier period's 7,338 units.

At an average price of 3,100 yuan per square metre for the first half of last year, it represented an 11.3 per cent rise from 2,785 yuan a square metre from the same period in 2003.

A total of 33,800 second-hand flats were sold in Beijing in 2003.

The rise in transactions came as increasingly affluent Beijing residents upgraded to bigger flats and sold off their old homes, units bought at a discount from their state-owned company employers. These units are often located in the city centre or convenient locations.

'With a bigger supply, second-hand flats will play a bigger role [in the real estate market],' CASS researchers wrote.

The increased supply also eased the pressure for prices to rise quickly, allowing ordinary citizens to afford a home.

The central government is facing mounting pressure to stabilise property prices, especially in cities like Beijing and Shanghai where flats in the city centres have jumped at double-digit rates even though more floor space has been completed in the past two years.

Beijing completed 11.31 million sq m of new residential floor space in the first nine months of last year, up 27.1 per cent from the year-earlier period.

Shanghai, which overtook Beijing in property prices with the highest per square metre price of 5,118 yuan in 2003, was expected to retain an overall growth in prices in 2005, CASS said.

'Looking at 2004's price changes and trend for the residential sector, despite central and local governments measures to tighten controls on land use, credit, pre-sale transactions ... Shanghai's prices will continue to rise,' the report said.

But it added that the growth was expected to be slower, a declining trend that began last year.

Last year, average price for Shanghai properties was 6,385 yuan a square metre, rising 14.6 per cent from 2003.

In the secondary market, transactions last year not only surpassed the volume for new flats, but also second-hand flat sales for 2003, 'signifying that Shanghai's secondary market has entered a stable but rapid development stage'.

Like Beijing, CASS researchers attributed the rise in sales to Shanghai residents' growing affluence and the desire to improve living conditions.

This year, secondary market transactions are expected to rise further despite banks tightening mortgage lending to second, third and subsequent flat purchases as they heed Beijing's order to quell spiralling property prices.

This was because the central government wanted to help the millions who, until now, could not afford to buy a home, the researchers said.