Shanghai has tightened restrictions on home sales, denying a plan that would have enabled short-term residents to buy a second residential unit.
Analysts say the stance is a signal that it is still too early for the government to loosen its tight grips on the property market, putting a brake on the days-long rally of property stocks on the Shanghai Stock Exchange on Wednesday.
A statement on the Shanghai municipal government's website said that only people holding Shanghai hukou, or household registration, are counted as "Shanghai residents" who are entitled to buy up to two residential units in the city.
The city's housing authorities had previously planned to include in the "Shanghai residents" category people who have stayed in the city for three consecutive years but have yet to obtain a hukou.
It is not unusual to see well-educated white collar employees wait years for their hukou applications to be approved in big cities like Beijing and Shanghai, not to mention low-income migrant workers.
The hukou system was first introduced in the 1950s to manage the migration of people from the countryside to cities. Though Chinese people today can move freely, the hukou system still holds them back in terms of access to education, medical care and property purchases.
Housing prices continued to fall in cities across China in January, the latest government data show, as authorities maintained their determination to stabilize the real estate market.
Since 2010, the country has imposed a raft of measures aimed at cooling property prices. These measures include higher down payments, restrictions on home purchases, a property tax in some cities and the construction of low-income housing.
Previous data showed that in January 2011, a total of 60 out of 70 cities surveyed saw rises in new home prices. Thirty-nine cities saw price gains in July, and in December the number fell to two.
Chinese Premier Wen Jiabao said earlier this month that the country will work unwaveringly to bring housing prices to "reasonable levels."
Meanwhile, several east and south China cities have been forced to abandon plans to loosen home purchase restrictions.