Property prices in Shanghai tipped to drop

SHANGHAI: Shanghai's property prices may fall as much as 10 per cent this year as the government prepares to roll out tightening measures to cool the overheated market, according to consultancy Colliers International.

Policy adjustments on the supply of land and monetary tightening will weigh down the red-hot market amid mounting anger over soaring housing prices.

"The upsurge has run out of steam," Lee Hingyin, a director of research and advisory with Colliers, said yesterday. "After all, it is a policy-driven market."

The Shanghai residential market witnessed a decline in sales volume during the first quarter as would-be homebuyers took a wait-and-see attitude over worries of further monetary tightening.

A total 1.82 million square metres of residential property transactions took place in the quarter, down 35 per cent from the same period a year ago, according to Shanghai Uwin Real Estate Information Services.

However, the average housing price jumped 48 per cent to 19,767 yuan (HK$22,483) (RM9,314) per square metre, Uwin said.

Beijing has taken measures to rein in easy credit this year, raising the bank reserve ratio by 50 basis points twice while ordering several banks to halt loan approvals temporarily in late January.

Lee said the central bank was set to raise interest rates in coming months as inflationary pressure grew. But he added that prices of residential properties in the city's prime locations would remain stable.

In Shanghai, banks granted homebuyers 99.58 billion yuan in new mortgages last year, 1,600 per cent more than the 5.8 billion yuan a year earlier.

"There is a possibility that the central government will step up administrative measures to bring down property prices, which will cause distortion to the market in the medium term," Colliers said in a report.

Since the end of last year, the central and local governments have issued a series of policies aimed at curbing over-speculation in the property market.

Beijing resumed the 5.5 per cent business tax on second homes bought and sold within five years.

Several banks also narrowed discounts on mortgage rates to first-time homebuyers. Bank of China cut the discount from 30 per cent to 15 per cent in February.

In October 2008, Beijing allowed lenders to offer up to a 30 per cent discount on mortgage rates to spur home purchases amid a lacklustre property sector at the time. — South China Morning Post