The residential housing market in Shanghai continued to contract due to limited supplies and lending restrictions during the fourth quarter of 2017, according to data from JLL, a realty services provider.

The mass housing market and the luxury segment in the city recorded drops of 47 percent and 80 percent respectively on a yearly basis, it said. However, analysts expected the overall housing market in Shanghai to rebound slightly in 2018.

Though the monetary policy will continue to remain tight, developers are likely to accelerate new launches in 2018 to ease the rising cash flow pressures.

"Combined with the pentup demand, sales may witness a slight rebound," said Stephenie Zhou, head of project sales for JLL Shanghai. "However, prices are likely to be largely flat as policy restrictions are still in place," she added.

Lu Wenxi, an analyst with Shanghai Centaline Property, said that buyers are also becoming more rational, which also signals that frenzied buying has disappeared.

"Buyers are comparing the price and location of proper-ties carefully. In the past, buyers would flock to projects with price appreciation out of fear that they would no longer be able to afford them if they wait. Those kind of buyers have disappeared", said Lu.

Tight lending combined with limited supply and restrictive policies helped limit mass market sales to 8,851 units, down 47 percent year-on-year, while high-end sales fell to 150 units, down 19 percent quarter-on-quarter and 80 percent year-on-year.

Despite slow sales through the year, inventory remained low at the end of 2017 due to limited supply. High-end inventories fell about 6 percent quarter-on-quarter and 27 percent year-on-year. As a result, prices stayed firm even with the slowdown in sales.

Analysts said that 2018 will be good for the residential leasing market as central and local authorities continue to encourage development of rental housing projects, giving developers strong incentives such as favorable financing conditions. Land supplies also lean to the leasing market instead of pure commercial sites.

According to data from Shanghai housing authorities, the city transferred 21 land parcels to developers that are for leasing-use only. All the winning bidders for the 21 parcels were State-owned enterprises, which have been playing leading roles in rental housing projects.

"More private investors and developers will join the competition amid the rental market's large potential, robust demographic fundamentals and government support," said Zhou.

A research note from Savills said that housing prices in Shanghai are stable, and efforts to curb speculation have been taking effect.

"Under such conditions, it is not very likely for decision makers to further tighten policies. New policies, if there are some, may focus on regulating practices in the market and check loopholes in existing ones. Buyers will have higher demand for quality, services and management of properties", Savills said.