By Li Zengxin (chinadaily.com.cn)
Updated: 2008-01-15 17:19

Real estate trade volume in major cities shrank drastically in the first week this year, according to statistics compiled by China Index Institute, a leading researcher in the real estate industry.

Shanghai ranked top by trade volume, with 3,430 apartments sold in the first week of 2008. Chongqing followed with 2,351, down 27 percent from the previous week. Beijing sold 1,500, down 27 percent and Wuhan sold 1,150, 24 percent lower. No other city sold over 1,000 houses.

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Hangzhou experienced the biggest drop among major cities, with only 191 suites sold, down 63 percent. Nanjing, Tianjin and Shenzhen saw housing sales decrease by 53, 49 and 38 percent respectively.

Prices of commercial properties fluctuated dramatically among the major cities. The average price of houses sold in Hangzhou grew 15 percent over the previous week to 16,341 yuan ($2,254) per square meter. Houses in Shenzhen were sold at 16,027 yuan per square meter on average, down 3.96 percent, while Beijing's home prices grew 1.33 percent to 12,342 yuan per square meter.

Market watchers said real estate dealers began cutting prices in many cities last week as the most important Chinese holiday, Spring Festival, draws nearer. In Beijing for example, a major real estate developer cut prices by over 2,000 yuan per square meter, instead of using "implicit" discount methods like decoration or home appliance give-away. The developer alleged it was the first in the city to lower selling prices because it needed capital to finance its purchase of two lots of land.

However, real estate analysts don't expect a massive price slump this year. Li Wenjie from Zhongyuan Real Estate said the current price changes are temporary, reflected by shrinking trade volume and high price elasticity, as a result of tightened credit controls. However, the price curve will remain upward in the long run, unless the Chinese economy slows, Li said.

This echoed a research report by the Chinese Academy of Sciences, which believes the forces pushing up China's house prices are largely unchanged. The report said growth in prices will continue this year for three reasons.

First, prices of construction materials such as steel and cement are rising constantly. Second, land development cost and prices of transferable lands are growing. Finally, there is a consensus expecting higher housing prices in the market, which has brought affluent capital from investment.

The fundamental problem cannot be solved unless a better taxation mechanism is adopted, the report says. The current stamp tax and personal income tax only target the transaction process. There is no tax if houses don't exchange hands.

This system discourages trade and instead encourages investors' speculations, and developers' hoarding of completed housing projects in expectation of higher prices. A property tax or real estate tax is a must to curb the "unreasonable" high prices, the top Chinese research institute believes.