The residential property market in Beijing will reach a relatively stable level amid downside risks this year, according to an industry expert from Savills, an international real estate consulting company.

In 2017, both supply and demand in the residential property market in Beijing were restrained because of tightening regulatory policies, resulting in a yearlong decline in market supply and transaction volume compared with previous years.

“The government wants to stabilize home prices, especially in Beijing,” said Anthony McQuade, managing director of Savills for the Northern China market. “There might be some tweaking at the edges, but they will not stimulate the market too much.”

Beijing’s pre-owned home market saw a rebound in inquiries and transactions in December 2017 and the first two months of 2018. In the near future, however, a modest rebound might be possible. “Fundamentally, there is still a strong demand,” he said.

According to William Kwok, director of Cheung Kong Real Estate Ltd, the government’s tightening policies restrain investment-oriented purchases, but the demand for improved living conditions remains strong, especially among families having a second child.

The company, Kwok said, is going to launch 400 apartments in the Beijing market this year, with the annual sales target reaching 2 billion yuan ($317 million).

“The question is, who is willing to take the move, because residential is a little bit risky due to potential government policy changes,” said McQuade.

In February, the average mortgage rate for a family’s first home in China rose to 5.46 percent, a year-on-year increase of 22.15 percent, according to statistics from Rong360, a company that offers financial network services.

“Middle-income people might be more sensitive to the adjustment of the mortgage rate,” he said. “Overall, however, it’s the ability to be qualified to purchase multiple apartments that will impact the market more.” So far, a Beijing family is allowed to buy no more than two units of residential apartments.

At the first session of the 13th National People’s Congress, Shi Yaobin, deputy minister of Finance, said that the government departments concerned are stepping up efforts to draft a law for property tax.

Talking about the expected property tax, McQuade said it is an appropriate thing to be considered. “There is too much distortion and divergence in China’s market,” he said. “A property tax will help bring the market to an optimum position, where more resources are utilized more efficiently.”

On the other hand, the block trade investment market in Beijing was overall active with strong transactions in 2017. The total transaction value reached 50.3 billion yuan, up 36.6 percent year-on-year, the highest in the last 10 years.

“With the restriction on capital outflows, the vast majority of investment is from domestic sources,” he said. “As a result, the yield rate of quality office assets in prime locations of China is relatively low, reaching only around 4 percent.”

While the investment market will continue to be active, in the search for higher yield, some institutional investors will focus on commercial projects in non-core areas and projects that can be upgraded to improve value.

Looking forward, Beijing’s office market will usher in substantial new supply in 2018, the report said. At the same time, the commercial retail market will see 12 shopping malls, most of which will be located in emerging markets and suburban areas.