SHANGHAI: The city is simmering under the intense heat this summer.

But local property brokers are feeling the chill of the government's relentless efforts to cool down the overheated market, largely by dampening speculation.

West Jin'an Road near the Century Park in Pudong, better known as "estate agent alley" dotted with more than 30 real-estate agent offices on both sides, now has the look of a ghost town.

About half of the offices are empty. A few are now occupied by other businesses. Such a state of desolation is in sharp contrast to happier times just a few months ago when the street was teeming with buyers and sellers of the many newly-developed properties in the vicinity.

Property agents in West Jin'an Road are not the only ones who have fallen on hard times. Deserted agents' offices can be seen in many avenues and alleys throughout the city after the government decided to clamp down on speculation from June 1. Industry sources estimate that Shanghai's more than 16,000 estate agency outlets are disappearing at a rate of about 20-30 every day.

"Trade has been cold recently," Lan Xiaofeng, a young broker with a branch of Midland in south Shanghai, tells China Business Weekly.

"A good office could make more than 1 million yuan (US$120,000) in commission with ease during boom times such as last fall, but since March, many of them cannot even cover rents and other recurring expenditure," he says.

There used to be eight agency offices along the same street, but only three have survived, according to Lan.

"Most customers buy for self-use instead of investment purpose since the policy (on speculation), and it is harder and harder to broker a successful deal," he bemoans.

His firm recently turned to the less-profitable lease-broking service, which they didn't bother to do in the heyday, he adds. He closed more than 10 lease deals in June.

Shanghai's estate agents seem to be the first link in the industrial chain where the government's measures have taken effect.

Seven ministries and organizations, including the People's Bank of China and Ministry of Construction, issued a joint decree on May 11 that sets out a wide range of measures to cool down the property market, including a 5 per cent tax on property owners who sell within two years of purchase. The decree, effective as of June 1, allows local governments to make detailed policies according to their particular situation.

Shanghai doubled its sales tax on luxury homes to 3 per cent from in the end of May in response to the central government directive.

The city also doubled property tax - to 3 per cent - on luxury homes, defined as those located in the city centre and costing more than 17,500 yuan (US$2,108) per square metre with an area of at least 140 square metres. Less expensive and smaller flats are labelled "affordable," with the current rate of 1.5 per cent left unchanged.

The tax hike was just one of a host of measures to fight speculation. The government has already ordered banks to require a higher percentage of down payment and restrict remortgages.

"Under the current climate, most buyers expect real-estate prices to decline and tend to wait and see," says Gao Tong, a home-salesman-turned-broker in Pudong.

"Small husband-and-wife agent teams who were cashing in on the real estate boom are the most vulnerable," he says.

But big agents with many offices are also having difficulties making ends meet because of their high costs, he adds.

Shanghai's property prices were moderate before 2002, and then started to soar under the local government's massive relocation schemes and a policy to encourage buying.

But prices soon rocketed to the highest in the country, after more than 30 per cent rises each year in 2003 and 2004 as speculation became rampant. Until recently, scenes of buyers lining up for days in front of sales offices were common in many new residential projects, and citizens took delight in talking about success stories in the speculative game.

Estate agents also expanded rapidly in that period. Big agents opened hundreds of new outlets in different parts of the city and started raking in huge commissions, whereas mm-and-pop offices also found their niche.

"You did not have to worry about finding buyers; and the only challenge was to find enough units available for sale," says Gao.

The happy days are gone. Despite developers' efforts to avoid a plummeting of prices, trade volume is shrinking as a wait-and-see mood prevails.

A central bank report issued in June indicates that urban residents' keenness to buy homes reached an all-time low in the second quarter of this year, with that of Shanghainese the lowest. The number of city residents preparing to buy homes declined 12 percentage points from the first quarter, in contrast to the 3.7-percentage-point drop in Southwest China's Chongqing Municipality and a 3.3-percentage-point drop in Wuhan, capital of Central China's Hubei Province.

"The key to survival is to change the marketing strategy from property-centred to customer-centred," says Xu Haibo, vice general manager of Shanghai's big-name Cheer Home Realty.

While resuming the less-profitable lease brokerage, Cheer Home Realty is also exploring commercial property as a way out of the present lull, says Xu.

Despite a sluggish residential property trade, commercial property is now tipped as a new growth point in Shanghai's real estate market.

"With China's commitment to the World Trade Organization (WTO) to fully open the financial sector by 2006, more international financial institutions are expected to enter the Shanghai market while existing foreign enterprises will expand their operations, so the demand of high-quality office spaces will increase. Hence, it is expected that there will be sustained upward trends both in the office and retail property sectors," says leading property service provider Colliers International in its latest report on the Shanghai property market.

"Foreign institutional investors will be conservative towards the residential market sector," the report adds.

(China Daily 07/18/2005 page7)