Recently introduced regulations, new government policies and the dour global economic climate are adversely affecting the mainland's luxury property market, according to analysts. Regulations imposed on buyers late last year and the drying up of credit lines in China, especially in the real estate market, have cut developers off from traditional sources of capital - revenue from property sales, and bank loans. 'We have certainly seen a significant slowdown in transaction volumes throughout the country, which has resulted in average prices dropping in some cities,' said James Macdonald, senior manager of the China research department at Savills. 'Nevertheless, prices in other cities have remained firm, while yet others, who did not experience rapid price appreciation, have continued to see some upward movement in prices.' Some properties, especially those owned by large investment banks in the United States, could be sold off to ease cash shortages, said Zhong Liang, head of China wealth management research for UBS Securities. 'Due to the economic slowdown, the demand for luxury apartments has fallen and fewer corporate executives are being sent to China,' he said, adding that furnished luxury apartments would be affected in the property market correction. 'Fortunately, China is less exposed to the global credit crunch, but debt funding is also limited due to local monetary tightening measures,' said Josephine Sye of China Properties Group. 'In recent weeks, the central government appears to be relaxing credit control measures, as demonstrated by the reduction in the interest rate and the reserve ratio last week. 'That said, there is still plenty of equity looking to be placed in real estate assets by investors such as German funds, who are less reliant on debt funding. Another interesting trend, as we are now seeing, is the re-emergence of Japanese investors in acquiring properties and assets in developing countries including China.' What the government does next could go a long way in determining the direction of both the economy and property market, Mr Macdonald said. 'The Chinese government has already indicated a willingness to step in to ease pressure on the economy with tax rebates, a decrease in interest rates, and a lowering of bank reserve ratios. 'While these changes in themselves are minor, they indicate a change of mindset in the government from one of restricting and cooling down the economy to one that is encouraging growth.' One niche segment that UBS Securities was bullish on was the villa market, Mr Zhong said. 'The government has a bottom line of [120 million hectares] of arable land, which is the minimum land size for growing crops to feed the 1.3billion population. Therefore, the supply of land for villas and other low-plot-ratio projects in Beijing as well as in other parts of China has been and will continue to be closely controlled by the government. Given the limited supply of land for villas, we expect the prices of villas to rise in the years to come.' Another aspect factoring into the equation was that buyers were less concerned about pricing and more interested in quality when assessing luxury properties, Mr Macdonald said. They're also less swayed by fluctuations in property prices and less affected by the credit crunch, he added. 'Prices for high-end properties have on the whole faired significantly better than the rest of the market.' In an attempt to stimulate sales, some developers have dropped prices. In some cases this had stimulated stronger sales, Mr Macdonald said, but because the market was softening buyers were taking a wait-and-see approach before purchasing a home in order to get the best possible deal. This slump is expected to continue in the short term. 'While the lack of capital continues to persist and the strength of the local economy remains uncertain, we are likely to see developers slow down land acquisitions and construction starts,' Mr Macdonald added.