Rapid income growth (real income growth of eight percent to 10 percent) is helping support price increases in China’s real estate, bank’s analysts say. However, tight monetary policy and anti-bubble measures have put the squeeze on housing demand and rising inventory level points that may lead to price correction next year.

 

Property prices in tier-two cities are likely to face more significant downward pressure as inventories are increasing more quickly in the second half of 2011. The rising inventories are partly due to shifting strategies of property developers away from tier one cities amid more stringent property cooling measures.

 

The Chinese government has adopted tightening macroeconomic pressures to curb the country’s rising inflation, while launching measures targeting property market to prevent a bubble. While economists and analysts have different views on the bubble, the government has shown no sign of reversing its policy directions yet.

 

Transactions in tier one cities are steadily going up again after a trough in February 2011, with primary prices staying firm at about 20,000 renminbi per square metre. In tier two cities, transactions are down compared to 2010 and prices are in a range of 10,000 renminbi to 12,000 renminbi per square metre. The average selling price in tier 3 cities has fluctuated from 7,000 renminbi to 7,400 renminbi per square metre and transaction has been stable this year.

 

September and October are traditional golden months for China’s property market as the long national holiday will boost home purchases and prices. But some analysts doubt whether this will continue this year under the firm policy control imposed on property developers and property buyers.