The growth in average prices for residential properties in China's mainland will slow to below 5 percent over the next two years, while Shanghai's housing prices are likely to drop further by 15 percent, an industry report forecast Thursday.

As a result of the changes in the supply structure, average prices are expected to exhibit a marked weakening or even a fall in the coming years, given the increased weighting of smaller-sized and lower-priced sectors, said a report by Citic Ka Wah Bank Limited.

The average housing price in 70 major cities across the mainland rose 6.1 percent from a year earlier in the first five months, led by cities such as Dalian and Shenzhen that reported more than 10 percent growth, according to government figures.

Shanghai's housing price dropped 6.2 percent in the first five months from the same period of 2005.

At the end of May, the mainland introduced new tax, land and credit policies to cool surging housing prices. It ordered that at least 70 percent of all new residential property projects must be for homes with a floor area of less than 90 square meters.

"The expected changes brought by the regulation should be more pronounced in larger cities where speculative activities are more prevalent and the proportion of high-end properties is higher," said Liao Qun, chief economist and strategist of China Banking at the bank.

The double-digit price rises in Beijing, Shenzhen and Guangzhou seen in the past year should be curbed to single-digits. For other eastern cities such as Dalian, Qingdao, Ningbo and Tianjin, residential property price rises are also expected to slow to single digit, he added.

Some analysts attribute the surging housing prices to increasing overseas investment in the mainland's property market and speculation has been mounting over other possible government's measures.

The authorities will soon restrict foreigners and people from Hong Kong, Macau or Taiwan from buying more than two properties on the mainland, China Business News reported yesterday, citing an anonymous source familiar with the potential policy.

The new policy will also forbid overseas buyers to sell the houses within a certain period of time after purchase, the report said.

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