China moves to lift property market Century Town, a vast property development 30km from the centre of the eastern Chinese port city of Qingdao, proclaims its "Spanish building quality" complete with archways and red tiled roofs. But the empty apartments and falling prices evoke another side of Spain - the housing market bubble that has savaged the Mediterranean economy. The question facing China, say analysts, is whether it will suffer a similar fate, depriving the fragile global economy of its most important growth engine and spelling the end of the past decade's commodity boom. Any answer will lie somewhere between the two very different faces of China's property market. In the biggest developed cities, houses are beyond the reach of all but the wealthiest citizens. But in the rest of the country - which represents the majority - property is now more affordable than it has been for years, making developers less inclined to build more. For the government, which has intervened to rein in real estate speculation, the two-speed property market presents a serious dilemma. With the economy slowing sharply, should it worry more about frothy prices in big cities or the weak construction activity elsewhere? "Policy makers target the very expensive cities, but these cities account for only about a quarter of national sales volume and the crackdown on them has a nationwide impact," said Rosealea Yao of GK Dragonomics, a research firm. Property construction has accounted for about 15 per cent of China's gross domestic product in recent years and its deceleration has taken a toll on the economy. China's growth is forecast to slow to an annual rate of about 7.5 per cent in the current quarter, its slowest since early 2009. Aware of the dangers, the central government has started to loosen its reins ever so slightly. It has encouraged banks to offer discounts on mortgages to first-time home buyers and has prodded developers to increase construction of cheaper homes. There are some signs that the policy shifts are yielding results. Qingdao and other cities have reported a pick-up in home sales in recent weeks. But a debate over the affordability of property remains. In China, economists see a house prices-to-income ratio of about 7 as reasonable, as was historically the case in fast-developing Asian economies. The norm in rich countries is closer to 4. Ms Yao of Dragonomics says the good news is that the nationwide market is fast approaching the preferred level as housing prices edge down while wages climb. The price-to-income ratio for houses peaked at 8.1 in 2009, but fell to 7.4 last year and will decline further this year, according to the Shanghai E-House real estate research institute. The bad news is that the price-to-income ratios in China's leading cities are still extremely high: 12.4 in Shanghai, 11.6 in Beijing and 15.6 in Shenzhen. Affordability has been improving since the correction started last year. But it's not been happening quickly enough. That is why the central government has insisted on maintaining its policies," said Wei Yao, economist with Société Générale. Qingdao, best known as the home of Tsingtao beer, is one of the many places caught in the crossfire of the government's campaign to cool the property market. Its houses are among the most affordable of China's major cities - with a price-to-income ratio of exactly 7 last year - and yet sales have plummeted by a third this year. It is not hard to see why. In Century Town's showroom, the faux marble columns are overshadowed by a giant sign with large red text explaining the government's home purchase restriction rule. The single most powerful weapon in Beijing's arsenal of real estate controls, it prevents existing homeowners from buying a second property. This has suppressed a lot of demand. People have waited and waited for prices to collapse," said Chang Le, a construction engineer at Century Town who has seen the pace of building work slow significantly. We can go back over our old work and do the same thing twice, but there isn't really much useful new work to do. According to Mr Chang the development, which is designed to house 50,000 people over an area as big as 250 football fields, was initially intended to be completed by 2014. With just a handful of tower blocks complete and most of the land lying untouched, however, he says 2018 is more likely. But the buyers are still coming. On a recent visit, Ken Zhang walked carefully across planks over an open pit to a half-finished building to show his girlfriend the apartment he just bought but will not take possession of until next year. Everyone has been paying attention to this development, because it is a big one. I saw the prices go down and I thought they were now reasonable. I can't see them falling by much more," the 29-year old said.