Shanghai property prices take a dive

PUBLISHED : Tuesday, 01 August, 2006, 12:00am
UPDATED : Tuesday, 01 August, 2006, 12:00am

Housing values drop more than 10 per cent in one week as policies to deter speculators take effect

Shanghai property prices fell more than 10 per cent last week from the week before, in a sign government moves to cool speculation are having an impact.

The central government last week announced it would enforce a 20 per cent capital gains tax on property sales, starting from today, and limit property investment by both foreign nationals and overseas Chinese.

One real estate agent predicted the tax would have a 'shocking' impact on the market.

For the week ended Thursday, prices dropped 10.7 per cent to an average 8,394 yuan per square metre, according to figures from the government-backed Shanghai Property Trading Centre, where buyers and sellers must register their deals.

Prices for residential flats fell at a slower 9.5 per cent to 9,458 yuan a square metre, but units in the inner city bucked the trend, rising 5.2 per cent. Agents say prices within the inner ring road remain firm, with those for luxury flats still over 30,000 yuan a square metre.

Total turnover rose by 3.9 per cent to 4,110 units. Analysts said turnover picked up last week as buyers and sellers rushed to complete deals before the imposition of the capital gains tax, with crowds and long lines reported at district property trading centres.

'Turnover is relatively big and there are many clients. This policy will have quite a shocking impact on property in the short term,' a real estate agent said.

The tax could cause owners of multiple properties to hold their units and rent them out, or encourage them to raise their selling prices to pass the cost onto buyers. The number of transactions is expected to shrink after the tax takes effect.

Shanghai has already announced that residential property prices fell 5.2 per cent in the first half of the year compared with the same period last year.

The city's investment in property development, a component of fixed-asset investment, increased a mere 0.4 per cent in the first six months, slowing from a 15.5 per cent rise for the same period last year.

Property investment was valued at about 58 billion yuan.

Local officials say Beijing and the southern cities of Guangzhou and Shenzhen are now outpacing Shanghai in terms of speculative gains in property.

In June, before the latest policies were announced, housing prices rose 5.8 per cent year on year in 70 major mainland cities. However, those in Shenzhen jumped 14.6 per cent, while Beijing prices rose 11.2 per cent for the month.

The mainland has been trying to crack down on property speculation for the past two years, but expectations of further appreciation of its currency and reluctance by local governments to cut off a major source of revenue have presented obstacles.