By Jin Jing (China Daily)
Updated: 2007-12-20 10:24

The once red-hot housing market of Shanghai is losing its luster, as government credit controls begin to bite.

Average daily property sales since mid-November have dropped 50 percent from the first half of this year to below 600 apartments, according to the China Real Estate Index System. Only 376 apartments changed hands last Sunday, the first weekend after the central bank clarified the definition of "second" properties that are subject to higher mortgage deposits.

Special Coverage: Housing in China  Related readings:  Shanghai home prices drop last month  Shanghai slows as buyers put brakes on  New steps to control property market

More than 55 percent of homebuyers have delayed purchase plans, according to a recent survey by property information firm Soufun.com.

Meanwhile, real estate developers are facing increasing financing pressure as commercial banks tighten credit. That cash flow problem is being exacerbated by the slump in housing sales because of government measures to clamp down on excessive speculation.

China's largest real estate developer Vanke Co Ltd was the first to boost sales by cutting its property prices by 15 to 30 percent in major cities like Shanghai, Shenzhen and Guangzhou.

In mid-November, Vanke offered a 2.7 percent discount on a property for buyers able to pay a 50 percent down payment and sign a sales contract within 10 days.

Wang Shi, chairman of Vanke Co Ltd, said at a conference last week that the property market had reached a turning point.

Vanke's monthly sales income fell 18.02 percent from October to 4.23 billion yuan ($573.17 million) in November, prompting the company to reduce prices in some cities, analysts said. The company also announced a 25.4 percent drop in sales in October from the previous month.

"Housing sales turnover and prices have reached their peak and we'll see a drastic slowdown of corporate earnings for real estate developers," said Wang Shujuan, an analyst at Orient Securities.

Wang said most investment properties were likely to be sold or rented out in the next year, which would increase supply and put pressure on developers.

Property developers are also showing less interest in buying land. A recent sale of 32 parcels of land in Shanghai received just four tender applications. A month ago there were 10 developers competing for one parcel of land.

"Many small and medium-sized companies are now faced with financing pressure, which will prompt them to cut prices or introduce overseas investment to survive," said Luo Xiaohua, general manager of Shanghai Jing Rui Properties (Group) Co Ltd.

Some market watchers predict the housing market correction could last up to 15 months before it picks up again.

Shanghai will invest over 2 billion yuan in a public housing fund to buy 8,000 low-rent apartments by the end of the year. The city plans to have budget housing for 100,000 families by 2010, up from 30,000 now.

The nation has poured billions of yuan into low-cost housing, urging local governments to reserve at least 70 percent of residential land for low-rent units or smaller, cheaper commercial homes.