No panic as home buying slows

PUBLISHED : Wednesday, 14 June, 2006, 12:00am
UPDATED : Wednesday, 14 June, 2006, 12:00am

The central government's new measures to cool home prices have turned off buying interest but there are no signs of panic selling, say property consultants.

Transactions in the secondary market in Shenzhen tumbled by up to 40 per cent after the rules to lower home prices were introduced on June 1. In Shanghai, sales of second-hand homes have also slowed.

In anticipation of the central government unveiling more new measures, home seekers have taken a wait and see attitude by deferring their home purchases.

Industry watchers warned a price adjustment would be inevitable if transactions continued to contract in the coming months.

'Most negotiations in Shenzhen have stopped since the new measures become effective,' said Lai Kwok-keung, a director and assistant general manager of Centaline (China).

Mr Lai said secondary market sales in Shenzhen had plunged 35 per cent to 40 per cent since the beginning of the month.

Although asking prices remained firm, property consultants said flat owners had softened their negotiation stance.

Patrick Hui, a director of Midland China's Shenzhen district, said the negative atmosphere might offer more room for talks between buyers and owners.

'But most potential buyers want to wait as they expect more new measures to come out,' Mr Hui said. 'Some owners have changed their plans from sale to lease after seeing the unfavourable market sentiment.'

Michael Choi Ngai-min, the chairman of Land Power International Property Consultants, said the potential impact on Hong Kong buyers was limited as they only accounted for 7 per cent of the property sales in Shenzhen. 'Most Hong Kong buyers are long-term investors,' Mr Choi said.

In Shanghai, second-hand home prices still managed to rise 0.27 per cent last month, said property agent City Integrated Residential Services. This compared with growth of 3.35 per cent in April.

Trading volume slowed as potential home buyers were hesitant to enter the market, the agent said. However, there was no panic selling even though transaction volume increased in the two days after the measures were announced.

'Compared with the impact when the central government imposed measures last year, property owners this time are relatively calm,' said a developer in Shanghai.

However, the new rules may not affect some. Last year, the Shanghai city government implemented a business tax of 5.5 per cent on the selling price of properties resold within two years of purchase.

'Now that the central government has extended it to five years, the impact will not be that significant when compared with other cities just now imposing this tax,' the developer said.

Agents said last year's property price policies were targeted at Shanghai, where prices jumped sharply. As a result, the city government and banks introduced their own measures including the capital gains tax.