“China was first to recover from Covid-19 with property prices rebounding in the second quarter of 2020,” said Martin Wong, director and head of research and consultancy, Greater China, Knight Frank. “All first-tier cities were expected to lead home price growth following the Covid-19 pandemic with Shenzhen, Shanghai and Guangzhou having relatively less stringent policy restrictions than Beijing.”

China’s tough anti-pandemic measures – such as sealing off Wuhan where Covid-19 infections were first detected and lockdowns across the entire Hubei province with its 60 million residents – helped to contain the pandemic and enabled the economy to grow by 2.3 per cent in 2020, compared with a contraction in global output of about 3.3 per cent.

In the first quarter of 2020 Shenzhen was not even included in the index but prices started to rise in April, after the central government loosened liquidity to boost loan growth and the country’s economy. Guangzhou ranked fourth while Shanghai was 24th in the list last year.

A luxury home in the city is typically a unit with a size of at least 200 square metres and priced at least 100,000 yuan (US$15,445) per sq m. This makes for entry level luxury homes priced at between 15 million yuan and 16 million yuan, according to Knight Frank.

The soaring prices have started to limit the options for affluent Chinese looking to upgrade their living space.

“My husband and I have been looking for a bigger home ever since Covid-19 hit last year as we are spending more time at home than before,” said April Feng, 35, who works in fund management. “But the prices keep increasing. Our ideal home would be a 200 sq m unit with at least five rooms close to downtown [Shenzhen] with a price tag of 15 million yuan. But now, with this kind of budget, we may end up with just a 150 sq m home.”

Soaring home prices have also triggered a slew of new property curbs, such as limiting banks’ property-related lending, and more stringent requirements for Chinese developers seeking to borrow funds.

China Construction Bank, one of the four major state lenders, has raised its mortgage rate to 5.1 per cent from 4.95 per cent for a first home and to 5.6 per cent for a second home, which roughly translates into an extra 5,500 yuan in annual mortgage payments if a homebuyer borrows 5 million yuan, according to state-backed media outlets.

In Shenzhen specifically, residents with hukou can only buy a home if they have held the local household registration paper for more than three years. Families are restricted to owning two homes, while single people can only own one. Residents without hukou must pay more than five years of social security funds to buy a home. A points-based system prioritising first-time homebuyers is also in place.

These measures are likely to cool home prices in the short-term, although not in the mid- to long-term, according to James Macdonald, senior director, head of China research, Savills.

“Property curbs have been effective in controlling price growth in the first-hand mainstream and luxury markets in the past and there is nothing to suggest that they will not work this time as well,” said Macdonald. “While the short-term market could see slowing price growth and lower transaction volumes, the mid to long term remains positive given the strong and growing base of end-user demand.”

The limited supply of luxury homes in the top mainland cities is also likely to further boost prices, according to Nelson Wong, head of research at JLL in Greater China.

“Because of the wait-and-see attitude that developers took during Covid-19, there had been little high-end projects launched in the first quarter this year,” he said. “At the same time, demand has been picking up as the pandemic worries continue to subside. In Shanghai, for example, the high-end residential segment saw 892 units sold in the first quarter, compared with 591 units in the previous one.”

With additional reporting from Pearl Liu