SHANGHAI: Downward pressure is expected on China’s soaring home prices should the Chinese government deepens tightening policies meant to curb investment and speculative demand, according to Colliers International latest Shanghai Research Bulletin.

In April, the price index of 70 middle-sized to large cities surged by 12.8% year-on-year (y-o-y), the highest growth since record began in 2005, despite a new round of tightening policies introduced by the central government in mid-April. However, transactions volume fell sharply, which will eventually mount pressure on developer’s cash flow, and add pressure on the prices.

The scenario is similar in Shanghai, where residential sales volume dropped by 42% y-o-y in April and remained sluggish in mid-May, while prices increased by 70% y-o-y with an average transacted price of RMB 22,900 per sq m. The Shanghai Real Estate Fair held during Labour Day holiday also saw a sharp decline in sales volume, said Colliers on May 20.

“Given that both buyers and sellers are still testing water amidst the continued adjustment in property market, the stalemate will continue for some time,” said Colliers.

The Ministry of Housing and Urban-Rural Development issued a circular on April 20, meant to prevent developers from manipulating sales by delaying supply to drive up prices. The circular stipulated that a list of all available units released for sale must be published and the prices clearly stated, projects not yet completed should be put on the market for sale under a fixed schedule and revenue from pre-sale should be put in designated account to ensure that it is used in project construction.

Following this announcement, cities such as Beijing, Shanghai and Qingdao issued corresponding tightening policies, which followed the Notice on Curbing Real Estate Price Surge in Some Cities issued by the central government on April 17. Beijing’s measures restrict families from buying more than one new apartment in the city for the time being, and banned mortgages for purchase of a third or third-plus home.

Additionally, the People’s Bank of China announced that reserve ratio will increase to 17% from May 10, 2010.

“As Shanghai measures have not been promulgated until now, the wait-and-see market sentiment prevailed,” said Colliers.

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