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Residential transaction volume drops in China due to tightening policy

KUALA LUMPUR: The impact of previously announced tightening policies in China are beginning to emerge with the residential transaction volume falling sharply in June as prices began to ease.

According to a statement by Colliers International on June 30, land prices in some districts remained firm although the land sales market was not active.

While the investment market was relatively quiet in June, there was further evidence that the finance industry will continue to be a key driver for office demand growth moving forward, it said.

One month following the enactment of further property market tightening measures, cautious market sentiment appeared to be gaining momentum.

Sales volume in May dropped sharply, while prices began to ease back. Both the sold area and sales value of the top four domestic developers plummeted in May.

Furthermore, the residential price growth rate in 70 mid- to large-sized cities also eased back for the first time in 14 months.

Following policies intended to curb speculation, transactions in the overall residential market continued to be lacklustre. In response, some developers began to adjust their market strategy, leading to slightly lower prices.

In Shanghai, deferred local tightening policies continued to sharpen the wait-and-see sentiment in the market.

Sales volume in the residential market continued to shrink with prices rising slightly up until a drop-off at the end of May. Sales volume in May declined by over 60% year-on-year. The average transacted price was around RMB 22,338 psm (RM10,660), down by 2.6% month-on-month (m-o-m). The growth of the price index for the secondary market moved up by 0.15% compared with the previous month.

In mid-June, the transaction volume has decreased further and prices have also continued to ease.

In order to curb soaring house prices, The State Ministry of Taxation issued a circular strengthening the ability to collect land value-added taxes (VAT). It is a progressive tax that aims to tax developers based on the theoretical land appreciation on the final value price of transacted property.

Currently, most cities are fairly relaxed in their collection of the taxes. Although the final goal of the policy is to ease housing prices by taxing developers less if a property is sold at a lower price, it seems likely that this stricter tax collection policy will be passed onto the consumer and end-user.

Shanghai's real estate investment market has recently been relatively quiet. HSBC bank sold 7,000 sq m of office space along with several parking spaces in HSBC Tower in Pudong to Hang Seng Bank for US$74.7 million (RM241.8 million) or around RMB 72,930 per sq m.

The deal suggests that further growth in the finance sector will be a strong factor rendering support to the Grade A office market in Shanghai and Lujiazui in particular.
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