As residential home market cools, investment keeps on growing

Hangzhou and Guangzhou reported month-on-month and year-on-year declines in home prices in both February and March, the report said.

In Shanghai's primary market, the residential sales volume fell by 44 percent quarter-on-quarter, or 32 percent year-on-year in the first quarter, the lowest in eight quarters, according to a Jones Lang LaSalle report.

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As sporadic news of price cuts has emerged from second- and third-tier cities, more homebuyers have opted to stay on the sidelines, hoping for bargains.

"Coupled with a tightening credit environment, higher down payment requirements and seasonal factors, the weak sentiment led to a sharp decline in sales activity in the first quarter," noted Joe Zhou, head of research for Jones Lang LaSalle Shanghai.

Region-wise, 15 out of the 26 cities in the Yangtze River Delta saw residential prices drop on a quarter-on-quarter basis, and such cities as Taizhou, in Zhejiang province, and Wuxi and Huai'an, in Jiangsu province, witnessed a decline of over 3 percent from last year's fourth quarter, according to the report.

This was in stark contrast with the Bohai Bay area, where only five of 20 cities saw a quarter-on-quarter price drop, and the Pearl River Delta, where only four of the 15 area cities reported price drops, and they were of less than 1.3 percent.

According to Chen Zhongwei, head of research at real estate firm CBRE China, in the absence of credit loosening and with more anecdotal cases of price cuts in a number of cities, market sentiment is expected to remain tepid in the near term.

In March, the central government proposed adopting special policies from city to city to control the residential market. This suggested that tightening measures in major cities, particularly where prices have risen rapidly in recent years, will continue, Chen said.

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