The red hot Chinese property market is showing signs of a slowdown, with some analysts saying that property prices could drop by 20 percent in the next 12 to 18 months.
However, others said that a decline in prices will only have a minimal impact on the country’s banking system.
The property market in China has been growing from strength to strength in recent months, prompting authorities to implement measures to rein in the asset bubble with higher down-payment requirements and mortgage rates.
Experts believe these policies target speculators who are active in the luxury end of the property market.
The measures seem effective, with luxury prices cooling off around 10 percent to 15 percent since April, said observers. The country’s property sales declined in May for the first time since December 2008, while property prices increased 0.4 percent from April to May.
Aside from cooling measures, the Chinese economy has to rebalance itself away from a great emphasis on property, said experts.
"There are some very silent rebalancing and restructuring of the Chinese economy that is taking place right now. And it may take another two to three years for the efforts to bear fruit," said Frankie Lee, head of Property Equities Asia at Henderson Global Investors.
Henderson sees opportunities in sectors such as financial services, consumer services and banking.
As of now, experts believe that the property market bubble will not badly affect the Chinese banking system, but they are observing the banks that offer loans to the property sector.
If a correction were to occur in the real estate market, the number of Non-Performing Loans (NPL) will increase because speculative buyers will default, they said. An increased number of NPLs will also affect the balance sheet of a bank.