A night view of the old houses surrounded by new apartment buildings at Guangfuli neighbourhood in Shanghai, April 10, 2016. [Photo/VCG]

The lottery will guarantee "transparent and fair distribution" of units, and is part of the city's measures to curb speculation in the housing market.

Shanghai's housing regulator also said real estate developers, agents and sales companies are forbidden from getting involved in speculative home sales.

The authorities concerned will blacklist firms and individuals that violate the rules.

Property firms and agents need to carry out only genuine, verifiable deals and prevent transactions involving fictitious names aimed at circumventing purchase limits, said the circular, which was issued late on Thursday.

Analysts said the lottery system will benefit buyers of smaller, lower-priced properties that are in limited supply and hence in high demand.

The lottery system also requires that transactions be notarized to ensure fair and transparent distribution of market-oriented housing projects.

The lottery system has been widely applied already in the distribution of subsidized government housing for lower-income families and low-rent houses.

"When supply (of new homes) doesn't meet demand, a notarized lottery system will work better than any other system. Unnotarized lottery systems used to lead to underhand dealings in the past, and scalpers would enter the market to resell home purchase qualifications. Now, the new system will maximize protection for homebuyers," said Yan Yuejin, a senior researcher with the E-house China R&D Institute.

Zhang Dawei, chief analyst with Centaline Property, said the lottery system supplements existing home purchase restrictions in Shanghai. It is likely to be adopted by other cities facing similar demand-supply mismatches.

Shanghai's new homes inventory by April-end stood at 6.28 million square meters, which would be absorbed by the market in nine months, if there are no more supplies, E-house data showed.

In Shanghai, stricter limits have been imposed on homebuyers' qualifications and down payment requirements to stabilize prices.