The Shanghai Real Estate Confidence Index of Entrepreneurs, compiled by the central government's National Bureau of Statistics, fell to 95.8 in the second quarter, a drop of 64 points, or 40 percent, from the first quarter.

A reading above 100 indicates positive sentiment, while a reading below 100 reflects negative sentiment.

The latest reading is 50.4 points below the second quarter of last year and the lowest since the first quarter of 2000.

The statistics bureau said most developers it surveyed expect the confidence index to drop further in the third quarter.

Governments at the national and municipal levels have piled on the hurt for property sellers this year in an effort to crimp speculation, which has been especially rife in Shanghai, though it is also a recognized problem in Beijing and Guangzhou. Residential prices in Shanghai rose 44 percent from 2000 to 2004, according to property consultants, Colliers International.

In May, the central government imposed a 5 percent tax on proceeds of home sales within two years of purchase. It also banned the transfer of titles for uncompleted units. Not long before, the Shanghai municipal government imposed a 5 percent capital gains tax on flats sold within a year of purchase.

The statistics bureau said finding money for projects has become the biggest problem for 58 percent of the developers it polled.

``A lot of developers, especially the smaller ones, are finding it very difficult to get further financing for their projects,'' said Wayne Zane, Shanghai-based associate director for research at Colliers.

Tenants in areas due for redevelopment were also digging in their heels and demanding better compensation from developers before agreeing to move out, he said.

Zane said a major factor in project delays in the center of Shanghai was the decision early last year to reduce plot ratios, which determine the size of new developments, inside the city's inner ring road.

``A lot of developers who bought land before 2004 are suffering because the buildable area of their projects has been significantly reduced,'' he said.

As a result, many developers, including Hong Kong's Kerry Properties, were still locked in arguments with government officials over plot ratios.

Some major mainland developers said they had slowed the pace of property investment in Shanghai in the second quarter of the year when property sales fell.

For example, China Overseas Land and Investment, a listed firm controlled by China's Construction Ministry, said it would focus on developments outside Shanghai because its expects prices in the commercial metropolis to fall by 20 percent this year.

Another state-run company, China Resources Land, said the number of property transactions in Beijing and Shanghai plummeted by more than 30 percent in May alone, though prices in Beijing had not been severely affected.

Beijing Capital Land, the property arm of the city's municipal government, which recently issued an interim profit warning, said the central government's austerity measures imposed last year, prior to this year's targeted anti-speculation measures, had delayed approval of three of its projects in the capital for nine months. As a result, ``pre-sales'' of uncompleted properties in all three were pushed back to this year from last year.

Christine Mui, a spokeswoman for Shui On Construction and Materials, said the company's Shui On Land unit had no plans to delay any of its Shanghai projects, though this could change according to the market's evolution.

Shui On chairman Vincent Lo said Monday the firm might adjust its sales strategy for upcoming launches, by offering fewer units for sale and more for rental, for example.

danny.chung@singtaonewscorp.com

raymond.wang@singtaonewscorp.com