Home sales bottomed out in the second quarter, though prices will not recover for at least 12 months, Jeffrey Gao, head of China property research with Nomura Securities Co Ltd, said on Wednesday.

The ongoing sales drop will start narrowing in the third quarter and sales may even slightly rise in the fourth, he said.

In the next three to four years, real demand will support sales and keep them stable, said Gao.

His view is echoed by Laura Luo, head of Hong Kong China Equities at Baring Asset Management Ltd.

"The property market in China is softening, thus putting pressure on the economy and financial system. However, we do not think it is anywhere near the meltdown scenario that led to the financial crisis in the West," Luo said.

"The majority of bank loans in China are still made up of corporate loans, and the direct exposure to properties is manageable," she said.

"Moreover, China still has room for policy maneuver to cushion the property market downturn," Luo said.

Home sales dropped 9 percent from January to July this year, according to data from Nomura. The fall represented the wane of speculative demand, but real demand remained robust, said Gao.

Inventories have been reduced sufficiently this year as developers delayed new home construction. Based on sales figures in July, inventory in China's first-, second- and third-tier cities are 13, 15 and 33 months of sales, respectively.

Government policies will remain favorable in the near future, most likely in the form of more tax cuts and the scrapping of purchasing restrictions.

"Purchasing restrictions and high taxes have lost their reasons to exist," said Gao. "The market is balanced right now from a sales and supply perspective."