Analysts warn on home price volatility in other Chinese free-trade zones

As the mainland plans to replicate what it has achieved in the Shanghai free trade zone (FTZ), the authorities may have to rethink how they can avoid a repeat of volatile home prices in other trial areas, analysts warned.

Home prices have begun to show signs of a softening in the Shanghai FTZ after soaring over 20 per cent in the second half of last year. Premier Li Keqiang announced the plan to test China's financial reforms in the area dubbed as a mini-Hong Kong last July.

Investors were disappointed by the slow progress which has been reflected in local home prices. An average two-bedroom flat at Waigaoqiao, a core part of the Shanghai FTZ, now carries a price of 25,000 yuan per square metre, almost unchanged since the end of last year.

"The outlook of the zone is not as bullish as people expected," said Li Liang, a manager at Shanghai Han Ju Real Estate Brokerage. "It will be a long time before a real flourishing area takes shape."

He said home buyers now had more bargaining power to request a small discount, an indication of fading interest in property investment in the zone.

When formally launching the pilot zone last September, authorities envisioned financial firms would cluster at Waigaoqiao in anticipation of drastic financial liberalisation. But the reforms have failed to live up to their promises as policymakers are more worried about rampant hot money flows coming in through the FTZ.