HONG KONG (REUTERS) - China's property-related shares fell by the most in nearly five years on Monday on plans to tighten curbs on the housing market, though some economists predict a near-term spike in existing home prices, at least until local governments work out how to implement the changes.
The plans, announced by the cabinet last Friday, include the stricter implementation of an existing 20 per cent capital gains tax on home sales, strengthening restrictions on home buying and increasing loan rates for those buying a second home in cities where prices are rising too quickly.
"More detailed measures will be announced by related ministries including the People's Bank of China (central bank) and local governments, so markets should definitely take the edict seriously and be prepared for falling prices of related financial assets," Bank of America-Merrill Lynch's chief China economist Lu Ting wrote in a March 3 note.
Lu said there could be a rush to buy existing homes before local governments say how they will levy the capital gains tax, but the number of deals would then slump, hitting property agencies.
A gauge of property-related stocks listed in Shanghai slumped 9.3 per cent on Monday - its biggest drop since mid-June 2008. The CSI300 index of leading Shanghai and Shenzhen stocks dived 4.6 per cent, its steepest fall since November 2010. In offshore Chinese markets, China Resources Land slumped 8.6 per cent, reversing gains so far this year, in its worst session for 17 months. The stock is now down 2.4 per cent in 2013 after surging 69 per cent last year. The broader Hang Seng Index is down 0.5 per cent this year.
"The actual impact of the new policy can be very severe or not severe at all, depending on implementation. But the wording is unexpectedly harsh,' said Yao Wei, China economist at Societe Generale CIB. "In three months time, the impact may not be big at all. But it has stirred very high negative expectations."
Local governments are expected to release their property control targets and detailed implementation plans by end-March, various Chinese media reported on Monday, citing Qi Ji, a vice-minister of housing and rural-urban development.
Friday's announcement came amid speculation about rising house prices and what additional curbs Beijing may bring in in the run-up to annual parliamentary meetings that officially complete China's leadership transition. Vice president Xi Jinping formally takes over as the country's new president on Tuesday.