In January China’s house prices recorded their worst performance in a year signaling that the Chinese property market is finally starting to cool down. Prices fell in 47 of the 70 cities monitored by the Chinese government according to the National Statistics Bureau, while they remained unchanged in the remaining 23. New home prices in the country’s four major cities, Shanghai, Beijing, Shezhen and Guangzhou fell for a fourth straight month.

The data is a result of a two-year effort by China to curb unsustainable rising house prices through a range of measures including higher mortgage and down payment rates, as well as bans on mortgages for people who own more than two properties. It is expected that the measures will continue for the next year and that house prices could continue to fall by 10-20 percent after growing by 7 percent a year two years ago. The reason? China is fearful of creating a housing bubble and does not want people to be priced out of the market. The government has also stated that it will increase the construction of ordinary commercial homes to increase supply.

The problem China faces with effectively tampering with its property market is that property accounts for a fifth of the fixed investment in China and a collapse in the industry could have serious ramifications for the rest of the economy. According to the Financial Times, a 30 percent drop in property prices could precipitate a collapse in the fixed investment economy, which has seen year on year growth of more than 9 percent. Whatever the outcome, the cooling in the property market will result in a slowing of the Chinese economy, perhaps by as much as 2 percent over the next year.

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