Prices of new homes in China grew in 2016 at the fastest rate since 2011, but moderated enough in December to calm fears of a speculative bubble bursting.

The price moderation will come a relief to China’s leaders as they wrestle with economic targets for 2017.

Sources have told Reuters that Beijing is prepared to accept a more modest growth target of 6.5 per cent in 2017 as leaders tackle a mountain of debt built up over years of heavy official borrowing to fund stimulus campaigns.

China depended heavily on the real estate market and government stimulus to drive economic expansion in 2016.

Now it is widely expected to report on Friday it met its annual GDP growth target of 6.5-7 per cent.

Analysts say two forward-looking figures – household loans and house sales – have been indicative of the cooling trend in the property market.

“There’s usually a two to three months’ lag between housing transactions and prices. And housing sales really began to fall quite precipitously in November,” said Jonas Short, head of investment bank NSBO’s Beijing office.

Average new home prices in 70 major cities rose 12.4 per cent in December from a year earlier, compared with November’s record 12.6 per cent rise, data from the National Bureau of Statistics shows.

But 12 of 15 markets that had been singled out by authorities as overheating had price falls, a significant increase from November.

“Slow growth or slight price declines are exactly what the government wants,” Short said.

China’s leaders have pledged to strictly limit credit flowing into speculative buying in the housing market in 2017, which would allow it to focus on defusing explosive growth in corporate debt.

China’s average home prices are forecast to rise 4.1 per cent in 2017, while growth in property investment would rise 5.4 per cent, a state-owned newspaper reported earlier in January, citing the Chinese Academy of Social Sciences.

But authorities will walk a fine line between curbing excessive price gains and clamping down too hard on a sector, which accounts for about 15 per cent of the economy.

After 2016’s record surge, further sharp gains may also require more aggressive policy curbs, adding to risks of a price crash and a sharp knock for the economy.

While supply in popular big markets remained low, China’s commercial housing inventory totalled 691 million square metres in November 2016, a mere 0.01 per cent drop from the same time a year earlier, adding to headaches of policymakers who set destocking in smaller cities as a priority last year