Property experts said the new tax - which is expected to be set at no more than 10 per cent of a property's value - would increase the cost of ownership but would not be enough to deter speculation.

Banking sources said the rates regime might come into effect next year and that only new home purchases would be affected.

A source close to the city government confirmed Shanghai was considering adopting a rates system. Higher rates would probably be charged for luxury apartments, while cheaper homes might be given a tax break.

Should it go ahead with the plan, Shanghai will be the first city in the mainland to adopt a rates regime.

Property owners in China are not required to pay annual fees to local authorities.

Instead, local governments levy all property-related tax on a lump-sum basis, charging developers for the right to use land for 50 to 70 years.

The move by the Shanghai authority is believed to be an attempt to shift the tax burden from developers to property owners.

Solo Cheung, general manager at Orient Overseas (International)'s property subsidiary, said the local government was hoping the proposed regime would lower developers' land costs and that they would, in turn, lower property prices.

Developers said the move would not encourage them to lower prices as they based these on market demand rather than development costs.

But they agreed that the new tax would increase homeowners' costs, and warned that this might cause some uncertainty in the marketplace.

Bo Teo, sales and marketing director of Yanfull (Shanghai), said: 'As the tax payable is being spread over 70 years, with a yearly tax payable to the local authority in addition to monthly loan repayments, the cost of homeownership will be higher.'