First, as rapid as property price increases have been - cumulatively 63 percent over the past nine years - incomes have grown at least four times as fast. Property is getting more affordable, not less. And second, census data indicate that half the urban population is living in residential buildings that will probably have to be torn down in the next 10 years or so. This upgrading demand, coupled with the demand from the 10 million or so migrants to cities each year, supports a level of construction roughly equal to last year's level. But housing starts are today not keeping pace with this demand.

Faced with a - temporary - oversupply, buyers will rationally wait for developers to cut prices further. But the longer they wait, the greater the risk that others will get ahead of them and buy. Evidence from past cycles suggests they don't need to be in too much of a rush to buy just yet, though. In late 2008 and early 2012 tier-one city developers' selling prices bottomed out at about 20 percent below their year-ago levels. Today, these developers' prices are down only about 7 percent year-on-year.

Some second- and third-tier cities have a greater overhang of properties for sale, so price declines are likely to be steeper. But we think developers have got the message that in order to clear their inventories they need to cut prices further - prices probably haven't fallen far enough.

So expect more reports of price declines in the months ahead; we don't expect prices to stabilize for another six months or so. Notice that we (at Deutsche Bank) haven't pinned our hopes on housing prices being relaxed. It can't hurt that at least 32 cities have apparently relaxed restrictions on property investments, but we don't think this is sufficient for the market to recover. Prices need to come down to make it attractive for people to buy. But with housing starts now falling below what is needed to satisfy demand, we think prices will start rising rapidly next year as today's excess supply turns into tomorrow's excess demand.

The author is chief economist and head of research, Asia Pacific, at Deutsche Bank.

(China Daily 08/26/2014 page9)