The July Shanghai housing index, released yesterday, fell 41 points, or 2.82 percent, from June, the biggest monthly drop since December 1999.

The index, compiled by Chinese Real Estate Index System (CREIS) Shanghai branch, is the most widely followed indicator of housing prices in Shanghai.

As expected, the index fall was accompanied by a shrinking in turnover. CREIS figures show that aggregate transactions in the commercial and residential housing market totalled 778,000 square meters, about one-third of the area registered in the month before.

Property market sources said decline in trading in the housing market was a reflection of a cooling off of speculative activities.

"It is obvious that many speculators have chosen to stay on the sidelines as government measures to clamp down on excessive speculation begin to take effect," said Lion Wong, managing director of Colliers International (East China), a unit of the international realtor. "Speculators confidence took a dive in July," she said.

CREIS' analysts said they did not expect the Shanghai real estate market, a leader in the nation, to recover anytime soon. They said the present price adjustment was a reasonable and "desirable" result of the overheating conditions of the past five years.
The latest development in Shanghai could set an example for some of the major cities in the Yangtze River Delta, including Nanjing, Hangzhou and Suzhou, whose property markets are also expected by CREIS' analysts to face some significant changes in coming months.

In Shanghai, the biggest fall in property prices was concentrated in districts outside the inner-ring of Shanghai. "Many of the newly completed projects in those areas are being marketed at sharply lower prices by developers," Wong said.

For instance, the housing price in Nanhui county, a southern suburb of Shanghai, is dropping fast, cutting about 2,000 yuan (US$247), or between 15 to 20 percent, per square meter from that of June, according to figures compiled by Soufang Holdings, a leading property agent in the district.

However, prices of prime residential properties in downtown areas have remained firm, real estate agents said. "There is always a strong demand, especially from the growing expatriate community, to lease these properties," said Wong. This will continue to enhance their holding value, she said.

For that reason, Wong and others have remained confident about the longer-term future of the Shanghai property market.

"We are seeing more and more business people from elsewhere in the country and overseas coming to Shanghai to live and work," Wong said. The demand will always be there, he added.

Wong and others said they expect the price of Shanghai properties to begin to stabilise in two years. After that they will move steadily upward.

(China Daily August 15, 2005)