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Shanghai index sinks 3.65% on property market curbs
Aggregated Source: Shanghai Daily: Business

SHANGHAI stocks plunged the most in nearly 19 months, dragged down by developers, after the central government tightened controls on the property market.

The benchmark Shanghai Composite Index lost 3.65 percent, the biggest daily loss since August 8, 2011, settling at a nearly two-month low of 2,273.4 points. Turnover was 143 billion yuan (US$23.1 billion) at the trading close.

China will levy a 20 percent income tax on capital gains by second-home sellers, the State Council said in a statement on Friday. It will also raise minimum down payments and mortgage rates for second home purchases in cities where home prices rise quickly.

"Despite the unexpected new restrictive policies, the statement came with tougher wording, indicating the beginning of a new tightening circle on the real-estate market," Shenyin & Wanguo Securities said in a report today.

Property developers tumbled. A gauge tracking the performance of listed developers dropped 7.6 percent. Poly Real Estate, China's second largest developer, slumped the daily limit of 10 percent to 11.37 yuan. Gemdale Corporation also slid 10 percent to 6.42 yuan.

However, analysts said the enforcement of a sales tax is not likely to slow rising home prices while posing a risk to China's economic growth.

"We think the immediate impact is going to be a surge in home sales in big cities, as people rush to close deals before the policy is put into place," research analysts at Societe Generale said in a note today. "Afterwards, property sales will probably drop substantially but property prices may not, as tighter implementation of the capital gains tax will serve to reduce the housing supply."

They added, "Slower home sales are very likely to dent the growth momentum and overall liquidity conditions as suggested by the housing downturn in early 2012."

Market sentiment also declined after data from the National Statistics Bureau showed the services sector grew at the slowest pace in five months in February, fueling concerns about the pace of recovery.

Cement producers also lost on concerns demand for the building material will dwindle. Anhui Conch Cement Co, China's biggest cement producer, fell 10 percent to 17.88 yuan. Gansu Qilianshan Cement Group Co plunged 10 percent to 10.20 yuan. Shaanxi Qinling Cement(Group) Co also saw its shares sag 10 percent to 6.20 yuan.

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