Property prices in China will rise by 10.3% during the rest of 2010 and as a result will become a risk to the country’s economic growth, resulting in a classic bubble situation according to Standard & Poors.

David Wyss, chief economist at S&P, said: “The property market looks darn good, its been going up, and this is a classic bubble. Prices are rising to an unsustainable level.”

The property sector contributes about 20% to the Chinese economy through real estate investments and related industries, according to Citic Bank International. China since April 2010 has placed restrictions on pre-sales by developers and curbed loans for third home purchases in an effort to cool the market after excess liquidity stemming from record credit growth in 2009 pushed up demand.

Wyss said: “While Chinas growth trajectory remains solid, we expect some softening in the coming quarter largely on the back of uncertainties in Europe. Rising commodity prices may also constrain the nations economic growth.”

Property prices are starting to show signs of slowing down as they have only increased by 10.3% in the year to July 2010, the slowest pace in six months.