Property tightening measures likely to weigh on China’s economy over the coming quarters

China’s property market is overheating.  On an annual basis, China’s property prices rose 13.7 percent in August, the fastest pace in the past decade. As property prices surged in the past few quarters, Chinese authorities have taken serious actions to prevent an asset bubble.

China's Premier Li Keqiang said the government would take effective measures to ensure the stable and healthy development of the property market. Over the one-week National day holidays, more than 20 Chinese cities launched property curb policies, including purchase limit and much stricter mortgage policies.

Recent cooling measures in the property market will weigh on China’s economy over the coming quarters. However,  property tightening will unlikely drag down the headline growth as sharply as we saw from 2010 onwards. "While a drop in housing sales will add downward pressure on the economy, we don’t really foresee a risk of sharp investment slowdown," said Commerzbank in a report.

Government data released on Wednesday showed that China's economy grew 6.7 percent on-year during the July-September quarter, unchanged from the previous three months. The data was in line with market expectations and looks set to hit Beijing's full-year target.

As headline growth has stabilized and the overall policy tone turns to “risk control”, People's Bank of China's (PBOC) monetary easing in the coming quarter will be less aggressive than estimated. Against this backdrop, a rate cut this year is off the table. On the FX front, a soft CNY can be expected to help bolster the economy somewhat, which could partially offset the possible slowdown in domestic demand due to property tightening.