NEW home supply in Shanghai outnumbered sales in May for the first time in eight months, but home seekers remained cautious even though the average price fell.

The supply of new homes, excluding government-funded affordable housing, soared 60 percent from April to 1.34 million square meters last month, the highest in two and a half years, Shanghai Deovolente Realty Co said in a report. Housing developers released more homes as they tried to boost sales to forestall any new policies.

"The surge in new home supply, which was the highest monthly volume registered since December 2010, indicated that developers were eager to capitalize before any further tightening policies are rolled out while summer may also keep more buyers at home," said Lu Qilin, a research director at Deovolente.

New home purchases in the city climbed 2.2 percent from April to 923,000 square meters last month.

The average cost of new homes fell nearly 3 percent from April to 23,219 yuan (US$3,745) per square meter.

None of the city's 10 best-selling residential projects cost more than 18,000 yuan a square meter last month, according to Deovolente data.