(Yicai Global) July 28 -- House purchases in the economic powerhouses of Shenzhen and Dongguan have cooled as new regulations to dampen the rapidly overheating property market have taken effect, the Securities Times reported today.

The hi-tech metropolis of Shenzhen introduced draconian new policies on July 15, banning those without a Shenzhen ‘hukou,’ or residence permit, from buying any property in the city and requiring those with a hukou to prove that they have paid personal income tax and social insurance for a minimum of 36 months before the purchase date.

As a result, the number of contracts signed for pre-owned homes fell by two-thirds during the week July 20 to 26 to 1,700, down from 5,143 the previous week which was already half that of the week before, according to data from the Housing and Construction Bureau of Shenzhen Municipality.

Neighboring Dongguan, a huge manufacturing base in southern Guangdong province, is also clamping down and is requiring buyers to prove that they have paid the city’s social insurance fees for at least two out of the last three years. It is also banning the resale of properties within three years of purchase.

The new regulations effectively block out any potential buyers from Shenzhen, their biggest customer base. The manager of a real estate agency in a popular area in Dongguan told reporters that they had not had a single house viewing request that day, Saturday July 25.

The full effect of the new regulations won't be felt before October, said the Shenzhen Real Estate Intermediary Association. Until then, there will be a wait and see attitude and the property market will continue to run steadily at a lower level unless there are further fundamental policy changes.

Loose monetary policy in the first half fueled property speculation. Shenzhen led the housing boom nationwide with house prices gaining roughly 1.6 percent month on month from March to May, according to data from the National Bureau of Statistics based on surveys of residential house sales across 70 medium-sized and large cities.

Shenzhen house prices saw a 9.7 percent gain in March year on year which increased to 12 percent in May. Meanwhile property prices in different areas of Dongguan increased between 10 percent and 40 percent in April.

Editor: Kim Taylor