A burst of lending in the first six months helped fuel a wave of pent-up end-user buying and speculative purchases, driving up prices for some projects in major cities by 20-30 percent and creating concerns about dangerous bubbles.

Speculative transactions are subsiding now; at the same time, a fresh round of property investments will increase supply.

The resulting moderation in prices, far from signaling the next phase of a boom-bust cycle, will probably pave the way for steadier demand from owner-occupiers, providing a valuable prop for an economy adjusting to a slump in exports, analysts say.

"First we see transactions fall, then prices will decline," said Ge Haifeng, deputy head of data research at the Beijing-based China Real Estate Index System, which is affiliated with SouFun.com, China’s biggest property website.

Transaction volumes in Beijing, for instance, fell 5.6 percent in August compared with July, the second straight fall after a four-month streak of gains, according to the city’s housing management bureau. In the eastern port city of Ningbo, they were down 37 percent.

That has not been by chance.

Worried by the spike in house prices, authorities in Beijing, Shanghai and other major cities attempted to curb speculation by introducing measures in July to make it harder for people to apply for second mortgages.

Such moves will increase the cost of buying a home and push down prices, said Fan Jianjun, a senior researcher at the Development Research Center, a government think tank.

TWEAKS, NOT WHOLESALE CLAMPDOWN

The drop in new bank lending — to an average of 383 billion yuan ($56 billion) in July and August compared with a monthly average of over 1.2 trillion yuan in the first half — will also pull down transactions in the coming months, said Gao Shanwen, chief economist at Essence Securities.

Policy tweaks and slower lending will probably be enough for now, analysts say, allowing Beijing to stop short of declaring a full-fledged campaign to stamp out property speculation similar to one in 2007.

Ge projected that housing prices would drop toward the end of 2009 or early next year, by about 10 percent, much less than a 20-30 percent fall witnessed last year.

Song Li, a senior analyst at Centaline Property Research Center in Shanghai, gave an even bolder forecast: "We expect prices to peak in September."

Andy Rothman with brokerage CLSA in Shanghai disagreed that the recent burst of buying and price increases made the sector vulnerable to a setback. He said the market was growing at a healthy, sustainable pace, driven by fundamental demand.

China Builders

Some 39.6 percent of respondents said they thought the market would not return to its heyday, when property prices were at their highest and billion dollar deals were common.

The majority of people (39.9 percent) said they did not think the sector would ever recover from the current global recession.

The UAE’s real estate and construction sectors have been badly hit by the downturn. A recent report suggests they have seen the biggest declines in the Middle East region. Some 566 projects have been shelved or cancelled in the country – the majority of which are in Dubai – according to the research house Proleads.

ArabianBusiness.com