Home sales in the red-hot property markets of Shanghai and Shenzhen tumbled sharply in the week after authorities made it tougher to buy homes in the cities to prevent a property bubble, surveys by a major Chinese realtor show.
After Shenzhen and Shanghai property prices had jumped 57% and 20.6% in February from a year earlier, local governments tightened downpayment requirements for second homes and raised the eligibility bar for non-residents to buy in the cities.
In the week beginning March 28, the first after the new rules took effect, the total floor area sold in Shanghai fell 60% from the previous week to 283,600 square metres, according to nationwide agency Hopefluent Real Properties (China), whose surveys are based largely on government data.
Shenzhen sales fell 28.2% to 71,000 square metres.
While much of China’s property market has been in the doldrums for two or three years after an overbuilding frenzy left a backlog of unsold and unfinished developments, life has been easy for realtors in China’s first-tier cities.
“Property agents now have to make calls again. They didn’t have to (call clients) before the tightening; business came to them,” said Joe Zhou, Jones Lang LaSalle’s east China head of research, adding client foot traffic dropped around 30% in the past two weeks. Some would-be buyers like Zhang Xiaohua, an IT designer at Chinese computer-maker Lenovo, said the measures had hit hard.
“I can’t buy now, and I don’t have much hope of buying in the future,” said the 27-year old, after Shanghai raised the requirement that buyers without local residence permits must have paid Shanghai taxes for at least five years, up from two.
“I’m scared there will be more policies targeting non-locals.”
Analysts said a plunge in volume was expected, given a smaller pool of eligible buyers after the new rules.
Prices also eased 3% week on week in Shanghai and 4.2% in Shenzhen, according to the surveys.  “A lot of people don’t want to get into the market now, so they’re not buying. This is giving me a headache,” said 56-year old Ding Xiaoping, a furniture salesman who is trying to sell two of his apartments.
“Many sellers are thinking about cutting prices. I’m thinking of lowering the price by a little, too.”
But developers see little immediate cause for alarm.
Officials at Shanghai-based Shimao Property Holdings and a Shenzhen-based developer, who declined to be named, said inventory levels remained very low in the two cities so they had no plans to cut prices.
“Despite the large demand wiped out by these tightening policies, developers are still seeing more clients than the saleable resources they have, so they don’t need to cut prices,” said Alan Cheng, general manager for realtor Centaline in Shenzhen.
Property investment and development is a major driver of China’s economy, affecting more than 40 sectors from cement to furniture, and accounting for more than 20% of gross domestic product.  With overall economic growth falling to a 25-year low of 6.9% in 2015, property investment growth eased to just 1%, the weakest in nearly seven years as developers slowed new construction due to oversupply.
It picked up, however, to 3% in the first two months of this year after a slew of government stimulus measures.  “China’s property investment in the first two months was doing better than our full-year forecast of a 5% drop,” Nomura chief China economist Zhou Yang told Reuters.  “We expect both sales and investment in the coming two quarters will remain robust, but the second half is likely to ease on housing recovery slowdown, affected by tightening in the first tiers and glut in the third and fourth tier (cities).”