ERIC Luo, an analyst with Century 21 China Real Estate, can still remember the mixed feelings he had on hearing that Midland Holdings would close its property agencies in Shanghai by the end of this month.

"I was surprised and also little bit sad," said Luo, who left Midland last year to work at Century 21, the city's largest estate chain by outlets. "I was with Midland for two years and never expected to see such woeful news."

Hong Kong-based Midland Holdings, a listed real estate chain, said it will close all Midland Realty outlets in Shanghai as part of plans to "optimize its internal resources and improve the overall efficiency" of its Chinese mainland operations.

"We will still retain our head office in Shanghai, offering property consulting," said Victor Cheung, Midland Holdings executive director and head of the company's Chinese mainland division.

As of last December 2010, Midland operated 285 outlets in Shanghai, Shenzhen, Beijing, Guangzhou, Chongqing and Chengdu. Only nine were in Shanghai.

Rise in closures

"Despite our decision, we have no intention to fully retreat from the Shanghai market, and the company still remains upbeat about China's real estate industry," Cheung said.

But it may look like retreat to a lot of people.

Midland is just the latest casualty of a slumping property market as the government tightens screws on lending and runaway home prices.

Real estate office closures, especially the small mom-and-pop local agencies, could stretch into the hundreds in Beijing and Shanghai alone, industry analysts have estimated. The big players are struggling through lean times, too.

"We suffered quite big losses in February, managed to break even in March and then recorded very small gains in April," said an official with a major estate chain in the city, who asked not to be identified.

"As far as I know, most big and medium-sized chain operators in the city are still able to maintain regular operations for now, despite sluggish activity in the sector for more than three months," he added. "Survival for some has meant shifting their focus to new property from the existing home market."

In January, the central government deepened its efforts to stop what it considers a bubble driven by speculative buyers more interested in profit than a roof over their heads.

On January 26, the State Council, China's Cabinet, added eight new measures to its arsenal, including an increase in mortgage down payments for second houses, a ban on local residents purchasing third or more homes and barring newer residents to the city buying more than one home.

Just one day later, Shanghai launched its long-anticipated property tax pilot project, imposing a rate of between 0.4 percent and 0.6 percent on newly purchased homes depending on per-square-meter price of the property.

From February, buyers of second homes who got loans from either commercial banks or the city's public housing fund have been required to make a down payment of 60 percent of the price, up from the previous 50 percent. Interest rates on those loans are set at 10 percentage points above the basic rate.

Moreover, local families who already own two or more houses and families without residence cards who have one home in the city are banned from buying any more units.

Home purchasers without residency permits are also required to present tax or social insurance certificates to show that they have resided in the city for a cumulative 12 months over the past two years.

Anyone still eligible to buy a home is restricted to one purchase.

The government also requires that the full transaction tax be charged for residential properties sold within five years of purchase. If an "ordinary" home is occupied for more than five years, the transaction tax is not levied. An "ordinary" home is defined by the government as one not larger than 140 square meters and priced between 980,000 yuan and 2.45 million yuan (US$150,700 and US$384,615), depending on proximity to downtown Shanghai.

With all those restrictions in place, the buying momentum for existing houses has dropped sharply.

Century 21 said 13,400 existing properties, with the majority being residential developments, were sold in Shanghai last month, up 3.7 percent from March. That, however, compared with nearly 22,000 units registered in April 2010 and with a monthly rise of 63 percent recorded in the city in March.

No rebound soon

"Buying sentiment for homes has picked up only very slowly in recent months, and overall volumes have been far from good," said Lu Qilin, research head at Shanghai Deovolente Realty, which has about 70 outlets across the city.

"With austerity measures remaining in place for wealthy buyers and rather limited purchasing power by most first-time buyers, the market momentum won't likely rebound any time soon," Lu added.

Preliminary data for the first half of May suggest that's the situation.

During the first two weeks of this month, transaction volume registered at Century 21's more than 300 outlets across the city either or fell about 5 percent from the same period a month earlier. Housing prices, however, remained firm.

The average price for existing residential units climbed 6.3 percent from March to 16,875 yuan a square meter in April.

Citywide, April prices in 43 of the city's 74 areas monitored by the Shanghai Existing House Index Office gained about half a percent, while 22 areas showed minor losses and another 9 were unchanged.

"The majority of local home owners still won't budge on price even though sales have been sluggish for three months." said Lu Bei, an analyst with the index office. "The city's estate agencies will probably continue to have a hard time."

Midland Holdings decided not to swim upstream against such a strong current.

The company entered the Shanghai market in 1996 and operated more than 50 branches city-wide during its heyday in 2007. It began to downsize in recent years and had only nine branches left in the city when it decided to pull the plug.

"Shanghai currently accounts for a very small proportion of our Chinese mainland business," said Midland's Cheung.

"We are always ready to expand our local business again whenever there are clear signs of a rebound," he added, "However, there is little likelihood that tightening measures to combat soaring home prices will be phased out any time soon, so we probably won't expand business here until at least next year."