By Jin Jing (China Daily)
Updated: 2007-10-24 10:15

The Shanghai property market is slowing after a new policy was released last month to curb speculation, prompting investors to put the brakes on.

Special coverage: Housing in China  Related readings:  Mortgage policy hits property investors hard  Property tax may go into effect next year  People would rake in more property income  Property investment soars in first eight months

Property sales dropped in the first week of October. Only 2,674 apartments were sold from October 1 to October 7, only a third of the sales in the last week of September, according to Soufun.com, which tracks the performance of the Shanghai property market.

Shen Jianbin, a 30-year-old senior technical manager, said he would wait for housing prices to go down to a more affordable level. "The latest government measures to curb soaring housing prices have strengthened my resolve to wait for a more reasonable price," said Shen.

Average Shanghai property prices have risen 5.7 percent in the first nine months this year, according to statistics from Savills Property Shanghai.

Wang Yuqi originally planned to buy an apartment in the business center of Jing'an District using earnings from the stock market. The average price in the area is 40,000 yuan persqm. But the new policy has forced him to abandon his plan.

Market insiders said many real estate investors will be hit by the new policy on second homes. The government raised mortgage deposits from 30 percent to 40 percent and increased the interest rate to 1.1 times the benchmark lending rate for second-home buyers.

That's an interest rate of 8.6 percent for a 10-year mortgage. Second-home buyers will have to pay an extra 100,000 yuan for a mortgage deposit and 62,274 yuan more for a 15-year loan on a 1-million-yuan apartment.

"Buyers are struggling to get big enough loans because banks are taking a conservative approach to property appraisals. In many cases properties are valued at less than the sale price," said Gao Shugui, a sales manager at Centaline China Property.

The slump in demand is prompting owners to lower prices. According to statistics from Midland Holdings, around 80 percent of owners had lowered prices in Shanghai as at October 10. Of the price drops, 75 percent were reduced to within 5 percent, 3 percent were cut by 6 to 10 percent and 2 percent fell by 10 percent.

"Some real estate investors are selling their holdings because they're worried the government will launch further tightening policies," said Feng Hongrui, general manager of Midland Holdings in Shanghai.

Tightened lending is expected to push small and medium-sized developers to speed up the sale of new apartments to recycle their working capital.

"Smaller developers that lack working capital and find it difficult to access the capital market for funding will likely be hit hard. They might be forced to sell off incomplete projects," said Hingyin Lee, director of research and consultancy at Colliers International Property Consultants (Shanghai) Co Ltd.

Gao said the market will stay calm until details of the new property policy are released.

But many analysts said the measure will have little adverse impact on genuine buyers in the long term because many are already paying deposits of more than 30 percent of the property price.

Recently, 80 percent of residential buyers have had to pay mortgage deposits of 40 percent or more.

"The details of the new policy have not been released, so we could see banks interpreting it in different ways," said Shao Minghao, an analyst at Hanyu Property.

The Shanghai government has taken several measures to prevent developers from withholding apartments to manipulate property prices, which have boosted supply.

Projects of less than 30,000sqm in gross floor area must now be pre-sold in one go.

For developments of more than 30,000sqm, developers will be allowed to pre-sell or sell in phases on the condition that each phase offers at least 30,000sqm in gross floor area, according to the Shanghai municipal housing, land and resource administration bureau.