Municipal authorities in Shanghai tightened mortgage down payment requirements for second home purchases on Friday, in a move to cool an overheating property market and reduce fears of a bubble.
Senior Chinese leaders raised concerns about the country's overheated housing market during an annual parliament meeting this month, and Shanghai is the biggest city to take action in the wake of the National People's Congress, which ended a week ago.
Under the new rules, home buyers will need to put down 50-70 percent of the price of a second home, compared to 40 percent previously, to qualify for a mortgage.
"The new measure will have a big impact on market sentiment on both the primary and secondary market; new launches being sold out within one, two hours will not happen again," said Joe Zhou, head of East China research at real estate services firm Jones Lang LaSalle.
With the new rules, Shanghai also made it harder for non-residents to buy homes in the city, according to a statement issued by the local government.
Potential buyers who do not hold local residence permits, or hukou, must have paid social insurance or taxes in Shanghai for at least five years before they can purchase property. Previously the requirement was two years.
Shanghai home prices gained 20.6 percent in February from a year ago, posting the second biggest gain in the country after the southern city of Shenzhen, where prices soared 56.9 percent, despite slowing economic growth.
Last week, authorities in the 'second tier' eastern city of Suzhou introduced measures to cool a red-hot housing market by putting a cap of 12 percent on annual home price gains.
Shanghai property lending by banks has also surged. In January, bank mortgage lending was 34.63 billion yuan ($5.34 billion), 68 percent higher than in December and more than triple the amount lent in January last year, according to central bank data.
Shares of property-related companies showed little reaction to Shanghai's action to curb the real estate market.
The CSI300 Real Estate sub-index and property sub-index were up around 0.6 percent by 0245 GMT. The CSI300 index and Shanghai Composite were up around 0.4 percent.
Zhou from Jones Lang LaSalle said he expected the new tightening to mainly hurt home transaction volume, while prices would continue on a moderate uptrend.
Xie Ji, general manager of Shanghai Region at state-backed China Resources Land, expected that lifting the down payment requirement would have a major impact on transaction volume in the secondary market.
"The government is hoping to tamp down the 'over-excitement' in the market," Ji said.