Beijing: Lydia Su said her heart jumped when she first heard a property in Shanghai’s tree-lined French Concession was on the market — even though it was no bigger than a bathroom. The 147-square-foot apartment, the detached annex of a villa, was priced at 1.8 million yuan ($267,169, Dh976,805), which at about $19,500 per square metre ranks it among the world’s most expensive residential spaces.

Although Su eventually decided against the deal, she thought it was cheap. “This is ‘small money’ compared to many other properties in China,” said the 27-year-old finance professional.

Looser government restrictions and easier credit last year have triggered a wave of speculative — and panic — buying. Official data shows Shanghai home prices are more than a third higher in September than a year earlier.

And homes in the French Concession are a cut above, with average prices exceeding 100,000 yuan per square metre, Su said. Nationwide, new home prices were up 11.2 per cent, the highest growth on record.

China’s biggest cities — Shanghai, Beijing, Shenzhen — have led the rise, but the frenzy is also spilling over into smaller cities in central China. The surge has helped sustain China’s economic growth, which held steady at 6.7 per cent in each of the first three quarters.

But when prices hit fever pitch at the end of summer, Chinese policymakers stepped in to warn about price bubbles and ballooning debts. In early October, 15 cities announced cooling measures, including higher down payment ratios on second homes.

At the end of September, outstanding mortgages to individuals had jumped by a third to 17.93 trillion yuan from a year ago, China’s central bank said. There are signs mortgages are crimping household spending, in an economy increasingly reliant on domestic consumption.

Analysts also warn that the bull market is bringing forward future demand, as people fear prices running away from them, which could lead to a destabilising loss of momentum in the coming months. “Our research showed half of the people we surveyed have brought forward their plan to buy a house this year,” said Wang Tao, chief China economist at UBS.

Concerns on sales momentum are also making developers wary of starting new construction projects. New starts fell 19.4 per cent in September, the first year-on-year decline since December.

Shanghai was one of the earliest cities to announce restrictive measures in March. Rumours were rife that it would further restrict property purchases in September, which led to a jump in convenient divorces to allow couples to qualify to buy multiple houses.

A UBS report showed the ratio of house prices to household disposable income in first-tier cities had risen to 18 to 20 times from 14.7 times at the end of 2015. “This puts China’s tier-1 cities’ affordability close to Hong Kong and more expensive than London,” the report said.