Property prices in China are likely to halve over the next two years, a top government researcher has forecast, in a strong sign that the country’s economic downturn faces further challenges in spite of recent positive data.

The property market and exports were leading drivers of the booming Chinese economy in the past decade and slumps in both have taken a heavy toll.

Cao Jianhai, professor at the Chinese Academy of Social Sciences, a government think-tank, said a rebound in the property market was unsustainable and driven by a flood of liquidity and fraudulent activity rather than real demand.

He told the Financial Times he expected average urban residential property prices to fall 40-50% in the next two years from the levels at the end of 2008.

Financial Times