"A flurry of housing investment over the past several years, fuelled in part by herd-like speculative buying, resulted in some developers building more housing than could be sold once the market began to slow.
Now, the concern is that the market could be cooling too quickly, and risk stalling one of the few engines in the economy that are still firing.
While new home prices in Beijing rose 14.1 percent in July from a year earlier and Shanghai prices were up 13.7 percent, smaller cities are lagging the major centers. The National Bureau of Statistics data showed average new home prices in China's top 70 cities up 7.5 percent on the year.
Housing, moreover, props up at least 40 other sectors, from cement to steel to furniture and home appliances. Local governments also depend heavily on revenues from land sales to developers to help service a debt pile worth trillions of yuan.
Still, some developers are scaling back.
Last month, Yu Liang, chief executive of China Vanke , the biggest listed developer by sales, said the company was pulling back from Yixing city in prosperous Zhejiang province.
And Yi Xiaodi, the president of Sunshine 100, a mid-sized residential developer based in Beijing, has put off plans to expand in Zhuzhou, a city with 3.9 million residents in Hunan.
"We changed our mind because of oversupply risk," Yi said. "We will avoid investing in cities where industrial competitiveness is fading and the market is plagued with over-supply. That will be very dangerous."
China's leadership, acutely aware of housing's importance to the economy, appears to have set aside concerns that a property boom was pricing millions of families out of the market.
That is how industry executives and analysts took a July 30 pledge to maintain "steady and healthy development of the property sector" by the Politburo, the top decision-making body.
But leaving the market alone may not be enough. With stock markets volatile and caps on bank deposits, property remains the only game in town for millions of Chinese savers.
Total property investment accounted for 14.8 percent of gross domestic product in the first half of 2013, up from 13.5 percent a year earlier. Residential property accounts for 70 percent of that total.
Most economists believe incomes will keep growing enough to sustain relatively healthy demand for at least a year, and the government does plan to encourage urbanization.
"We expect a stable property sector policy in the coming year and see a modest property recovery to continue," said UBS chief China economist Tao Wang.
Industry executives say there is now a tide of new investment coming to top cities and provincial capitals, because demand remains strong. Over time, economists say, that could ease housing price inflation in China's biggest cities.
Source: Reuters
