Government measures to curb property speculation are having an instant impact in Shanghai, the country's hottest market, sending prices down and buyers to the sidelines.

On Wednesday, when the new property policies took effect, there were 358 daily transactions of new homes in Shanghai, compared to 462 on May 9 and 604 on March 16, according to eHomeday, Shanghai's biggest property Internet portal.

Average transaction prices fell to 5,884 yuan (US$711) on Wednesday, down 19 percent from a day before. But prices downtown remained stable.

The latest setback has many home buyers, property agents and developers wondering if the wildly overheated market has reached a turning point. They seem uncertain about its future direction as the full impact of the government measures has yet to take full effect.

Property agents said the strong measures aimed at clamping down on property speculation will effectively curb demand and affect sales of apartments in new projects.

A recent survey carried out by Colliers International, a leading property services provider, shows that 65 percent of buyers of units at six property projects with an average price of more than 12,000 yuan (US$1,440) per square meter in Shanghai were owners-occupiers, while the remainder were investors, including some speculators.

The survey shows the proportion of investors in the Shanghai property market is "unhealthily high," said Lina Wong, managing director of Colliers International (East China).

Shanghai doubled its sales tax on luxury homes to 3 percent from Wednesday - a response to a recent central government directive to curb property speculation.

Seven ministries, including the People's Bank of China and Ministry of Construction, issued a joint decree on May 11 that sets out a wide range of measures to cool down the property market, including a 5 percent tax on property owners who sell up within two years of purchase. The decree, effective as of June 1, allows local governments to make detailed policies according to their particular situation.

Shanghai has also doubled property tax - to 3 percent - on luxury homes, defined as those located in the city centre and costing more than 17,500 yuan (US$2,108) per square metre with an area of at least 140 square metres. Cheaper and smaller flats are labelled "affordable," with the current rate of 1.5 percent left unchanged.

The property market has been slowing down for a couple of months as it felt the chill of the new policies in the lead up to June 1. The decline has prompted Wong to call this the "turning point."

Residential property prices in Shanghai fell by an average 9 percent to 8,097 yuan (US$978) per square metre in April from the previous month. The biggest fall in residential sales in terms of floor area was in peripheral districts including Zhabei, Putuo and Minhang. Together they registered an average decline of 40 percent in April.

The number of transactions in the secondary market also dropped - by 50 percent - during the period, according to Midland Properties (China), a leading estate agent based in Shanghai.

"It is obvious that the market is very quiet in the past several weeks," said Calvin Lau, Midland's regional director. "Understandably, many potential buyers are holding back from making a purchase while waiting for the dust thrown up by the government actions to settle."

Meanwhile, more and more sellers are lowering their prices to unload their properties before the market can get any worse.

Among these keen sellers are the many speculators who are beginning to feel the intensifying heat of the government-initiated credit crunch.

The Shanghai region is believed to be the primary target of the government's tightening-up policies as it has experienced wild speculation in recent years. In some places in Shanghai and neighbouring cities such as Nanjing and Hangzhou, property prices jumped three or four-fold over the past three years.

CCTV launched a special report this week about how some speculators in the region are vying to sell their stocks before it is too late. While there are some sellers asking every estate agent they can find to promote their property, there are many agents that have had to shut down after not clinching a deal for weeks.

But some analysts nevertheless see a solid leasing market.

"Rental is expected to stay on a rising trend because demand has already outstripped supply resulting from the continuing inflow of multinational firms to the city," said Anton Eilers, regional residential director of Colliers International.

He said the company has received a growing number of enquiries about the leasing market in Shanghai, not only from Fortune 500 companies but also some little-known foreign firms that plan to set up branches.

Eilers projected the luxury residential rental market for expatriates to surge by 12 percent from its current level of US$23 per square meter per month, over the next year.

Echo Xu, from the human resources department of Dulwich College Shanghai, told China Daily that the housing allowance for its foreign staff had already gone up 25 percent to US$1,000 per month in the past 12 months.

(Xinhua News Agency June 3, 2005)