Across the country house sellers scrambled to cut deals to avoid paying a stiff tax on home sales introduced yesterday in a bid to curb spiraling prices.

From the start of this month, a tax of 5 percent will be charged on the full earnings of all home sales if the property is sold within two years of being purchased.

For luxury apartments and villas in this category the duty will apply to the difference between the sale and purchase prices.

In cities where house prices have soared, the local government will slap higher property tariffs on luxury houses.

Buyers of luxury properties in Nanjing, capital of Jiangsu Province, will have to pay a 4 percent tax, up from 2 percent previously.

This is just one positive step in a coordinated government strategy to cool the red-hot property market and stabilize prices.

Other measures include a mortgage interest rate increase and downpayment adjustment.

These moves are effective for curbing speculation, said Zhang Yan, a property analyst at China Securities, but to bring prices down more action must be taken.

Market insiders say many of the small and medium-sized property speculation groups are on the verge of collapse.

As for house prices, experts say the market should not expect a quick decline.

But property prices in some large cities have dropped since April. In Shanghai, the average residential housing price dropped to 934 yuan (US$113) per square meter from the middle of April to the middle of last month.

But experts say the average price decline is mainly the result of a dramatic decrease in turnover of high-priced houses. The municipal government also recently launched an affordable housing project on the outskirts of the city.

Prices will not fall a great deal if land and building costs do not decline, and while demand is high. Developers are unwilling to compromise by squeezing their profit margins, said Wang Deyong, an analyst at CITIC Securities.

Zhang at China Securities said more should be done to improve living environments, build more social facilities and equally distribute resources, as house prices rely heavily on conditions in the surrounding community.

Developers should be provided with more financing channels to launch further projects, as the unbalance of supply and demand is another key factor contributing to high housing prices, said Wang from CITIC Securities.

(China Daily June 2, 2005)