Developers may benefit from the reintroduction of a 20 per cent capital gains tax, as homebuyers are expected to respond to the move by shifting from the resale market to the new-homes market, say analysts. "These new measures may inadvertently shift demand for existing homes to new homes, and may potentially benefit developers, builders and raw material providers," wrote Ting Lu, China economist at the Bank of America Merrill Lynch in his latest report. Lu said local governments might allow some leeway for existing-home sellers to pay a lower rate of tax or avoid it altogether. Details of how local governments will respond could, meanwhile, leave many loopholes open which buyers and sellers of existing homes could take advantage of. Alan Jin, an analyst at Mizuho Securities Asia, agreed it was possible buyer attention would shift from the secondary market to that for new homes. "Some of my industry contacts on the ground have mentioned such a possibility. It is a way to discourage investment demand," he said in a written reply to questions from the South China Morning Post . As well as ordering the implementation of capital gains tax, the State Council, in its latest directive, requested that banks adhere to requirements for the issuance of mortgage loans to first-time homebuyers and for the interest rates on those loans. It also wanted banks to ask buyers of second homes in cities where prices have risen rapidly to make higher down payments and pay higher interest rates. Jin believes these measures could be more easily executed than levying a capital gains tax. "But it may take a while between the introduction of these measures and developers starting to cut prices. Developers will quite often not cut prices if cash flow pressures are manageable. This is especially true for unlisted small developers, and so these measures will affect volume more than price," he said. Lee Wee Liat, head of research at BNP Paribas, expects transaction volumes in the secondary market to trend lower in the second and third quarter. "As transaction volume shrinks, there is a possibility that large developers will start to cut prices going into the third quarter," he said. Although policy focuses on the first- and second-tier cities where prices have risen more rapidly, Lee sees buyer sentiment being affected across the board.