China’s property market is going in ‘two directions,’ says ex-central bank advisor

China’s real estate sector is going in “two directions,” and even though further stimulus is expected, a recovery will not likely happen soon, according to a former advisor to the People’s Bank of China.

“The property market right now in China is actually two-fold. It’s actually going into two directions,” Li Daokui, now a professor of economics at Tsinghua University, said Friday.

China’s property market has been rocked by faltering consumer confidence in real estate companies as property giants Evergrande and Country Garden face debt woes. Country Garden just narrowly avoided default while Evergrande has filed for bankruptcy protection.

China’s house prices slipped in July, falling 0.1% year-on-year after a brief recovery in May and remaining flat in June.

Asked if Beijing’s policy response should be “bolder,” Li said there are “many meetings, discussions, deliberations which are [unseen] below the water.”

Market participants don’t not see enough signs of such policies, he said on CNBC’s “Squawk Box,” but “a lot of policies will go out” in the next two months, he predicted.

They will likely include those that “stabilize the finances of the largest property developers. So any possibility of financial panic should be, and will be dispelled,” he added.

The slowdown in China’s property market is not uniform, Li pointed out.

“In the largest cities, like Beijing and Shanghai, good properties… relatively large apartments are being sold at a much faster pace than before.”

Meanwhile, sales are falling in the third- and fourth-tier cities, he added.

“What’s going on here is that there’s still a lot of liquidity among high income people. However, people who are earning moderate salary are much more hesitant in buying,” he explained.

As such, he expects property sales to pick up in the next six to 12 months in third- and fourth-tier cities, as well as for smaller apartments. “So there still will be quite a few months of recovery for the property market.”

Beijing has sought to prop up China’s faltering housing market in recent weeks, by cutting loan interest rates as well as easing purchase and sale restrictions.

On Wednesday, China’s state-owned Securities Times published a commentary calling for the lifting of “policies restricting property purchases in cities other than the hottest top tier cities” as soon as possible, according to a CNBC translation.

“In the current situation where there are major changes in the demand-supply relationship in the property market, it is no longer appropriate to retain restrictive policies that were previously implemented to curb speculation,” the commentary said.

It concluded that there was an “urgent need” to increase policy support to boost sales, thereby releasing demand suppressed by these rigid housing policy.