Mainland home prices will fall by up to 30 per cent in the coming year because of the government's austerity measures, according to economists at Barclays Capital. 'The market will likely experience policy-induced correction by 10 per cent to 30 per cent in the coming year, which should impact economic growth but is unlikely to lead to financial meltdown,' Barclays analysts led by Huang Yiping said in a report yesterday. Premier Wen Jiabao reiterated on Sunday the government's decision to continue its tightening policy in the real estate sector and let property prices 'fall to a reasonable level'. The economists predicted Beijing might be willing to tolerate an average drop of 20 per cent in home prices across the country. The actual decline might be up to 30 per cent, they forecast. The team said if prices adjust by 20 per cent, the government is likely to 'micro-adjust' or even reverse the policy restrictions because the purpose of Beijing's measures is to induce a price adjustment, not a crash. 'The longer-term policy agenda is to replace policy restrictions (such as home purchase limits) with property taxes, which are already being experimented with in Chongqing. The transition, however, might take three years,' the report said. A 10 to 30 per cent drop in home prices would shave 0.5 to 1 percentage point off the country's gross domestic product growth next year, Huang said. The bank forecasts a 8.4 per cent growth next year. The Barclays analysts said residential investment, which accounts for about 25 per cent of total fixedasset investment on the mainland, might shrink around the middle of next year, which would adversely affect the global commodity markets. The country's property sector has already bubbled up significantly, the economists said. The bubble, they said, has not burst yet because the market is supported by strong income growth, high savings but limited investment opportunities, continued urbanisation and low household leverage. But they warned these positive factors could turn negative in the coming years. For example, income growth is likely to slow as the country may experience a less rapid economic development, while financial liberalisation may open up new investment opportunities for households, increasing their leverage ratio. Lee Wee Liat, an analyst at Samsung Securities, said property prices were stabilising and a declining trend had been firmly established. He forecast the trend of falling prices to strengthen significantly in the last quarter of this year.