SHANGHAI'S property market is set to "correct" this year, and the city is preparing to levy a property tax on newly-purchased spacious homes.

"Home prices are likely to drop slightly in 2011 while transaction volume is expected at no less than the 2010 level," the Shanghai headquarters of the People's Bank of China said yesterday on its website. "Investment value is still likely to grow slightly."

But the central bank forecast that over the middle- to long-term perspective the property market in Shanghai and other top-tier cities will start to rebound first.

Shanghai Mayor Han Zheng told lawmakers at the annual session of the Shanghai People's Congress on Sunday that the city is preparing a property tax that will be levied on newly-purchased luxury homes. But he didn't specify the tax rate.

Shanghai will continue to maintain existing tightening measures this year. In 2010 it unveiled a series of steps including restricting a family to buying just one new home, freezing mortgages on third-home purchases and increasing borrowing costs on buying second homes to rein in speculation in the housing market.

Shanghai's existing and new housing prices, however, rose in December despite the cooling measures. The existing housing index rose for the fourth consecutive month in December to 2,566. The average price of new homes soared to a record high in Shanghai last month on strong sentiment among buyers for mid- to high-end properties.

New homes, excluding those designated for relocated residents under urban redevelopment plans, were sold for an average of 24,176 yuan (US$3,652) per square meter in December, up 7.6 percent from November and 21 percent from January.

City residents are also feeling inflationary pressure on rapidly-rising food prices. Shanghai aims to keep inflation within 4 percent this year, after it rose 3.1 percent in 2010.

Han also said the city aims to grow its economy 8 percent this year, while the central bank forecast it to rise slower than 8 percent in 2011.