Chinese property 'bubble' fuels hard landing fears

"Can China deflate its real estate bubble without generating a hard landing in its economy? It's a serious problem. The Chinese themselves are quite worried about it," said Nariman Behravesh, an analyst at IHS Global Insight.

"If you look at the ratio of home values relative to GDP, China is about the same level as Japan's before Japan's bubble burst," he warned.

Fuel by rapid economic growth and urbanisation, China's property prices last year defied cooling measures, climbing four straight months to December.

The Chinese Academy of Social Sciences, a government think-tank, warned in December that of 35 major cities surveyed, property prices in eleven, including Beijing and Shanghai, were overvalued by between 30 and 50 percent.

On Friday, authorities launched a property tax on two of the country's biggest cities -- Shanghai and Chongqing. Those who buy high-end second homes in those cities must now pay a 0.4 to 1.2 percent annual tax.

Earlier in the week, the government hiked the minimum down-payment for second homes to 60 percent from 50 percent.

Down-payments for first homes have to reach at least 30 percent, and banks have been ordered not to provide loans for third or later homes.

Zhang Xin, who founded Beijing's biggest property group Soho China Limited, said housing "has somehow become a very political issue" in the Asian giant.

"This industry somehow manifests the two most important social elements in China. One is the income disparity between the rich and the poor, the other is corruption," she told a panel at the World Economic Forum.

"When somebody has money and they go to buy expensive houses, then asset prices go up. This is a sword in the eyes of the less well-to-do people, so it has created a public outcry," she said.

Government corruption has also been linked to property development, and stories abound of peasants forced off their land by crooked developers.

"The government is likely to continue the austerity measures, but the question is if these are effective," Zhang said.

"In my own view the market economy has grown to the stage that it's very strong and sizeable, that is much stronger than government thinks, and that's why these measures have not been the most effective and I think next year will be the next year to watch," she said.