BEIJING (Reuters) – China’s property investment slowed to its weakest pace this year in a sign the housing market’s resilience may be waning as Beijing toughens its crackdown on speculative investments and holds back on new stimulus.

Property investment, which mostly focuses on the residential sector but also includes commercial and office space, is a key driver of growth in the world’s second-largest economy.

Real estate has also been one of the few bright spots in the economy, which is dealing with the effects of a bruising trade war with the United States.

However, China’s real estate has become increasingly polarized in recent months, with some cities showing signs of overheating and others rapidly cooling.

Beijing has dashed hopes it would ease its bubble-curbing measures to boost the faltering economy, saying in a high-profile work meeting in July it will not use the property market as a form of short-term stimulus.

At the same time, there are concerns further cooling could lead to painful repercussions for local government such as shrinking revenues. A slowdown has been felt deeply in many provincial cities after the real estate market hit a downturn in late 2018.

Property investment in July rose 8.5% year-on-year, easing from June’s 10.1% gain and was the slowest since December’s 8.2%, Reuters calculation based on National Bureau of Statistics (NBS) data on Wednesday showed.

It still grew 10.6% from the prior year for January-July, compared with a 10.2% increase in the same period last year and 10.9% in the first six months.

The moderation was in line with shrinking factory activity and a worse-than-expected contraction in producer prices seen in July, which have added to broader worries about the prospects of a global recession.

Property sales by floor area – a key gauge of demand – grew 1.2% in July from a year earlier, recovering from a 2.2% drop in June, according to Reuters calculations.

For the first seven months, however, sales still fell 1.3% following a 1.8% decline in January-June.

Funds raised by China’s home developers grew 7% on-year in January-July, lower than a 7.2% increase in the first six months, official data showed and pointing to growing financial strains for residential developers as China tightened its grip on money flowing to the property market.

Beijing has made it harder for developers to raise new capital. Earlier this month, authorities launched a nationwide bank inspection to crack down on loans illegally directed to property market.

Access to foreign investment through the offshore bond market has also been further restricted, while major trust companies involved in real estate investment suspended new fund-raising for home developers following window guidance from regulator.

New construction starts measured by floor area slowed, rising 6.6% on-year in July, versus a 8.9% gain in the prior month, according to Reuters calculations. For January-July, new construction starts rose 9.5% versus a 10.1% increase in January-June.

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