SHANGHAI - China's property market isn't a bubble because household incomes are rising in line with housing prices, according to Andy Rothman, CLSA Asia-Pacific Markets' China macro strategist.

Housing prices in so-called second-tier cities, where most urban Chinese live, are about 75 percent lower than in larger cities such as Beijing and Shanghai, and price increases are slower, Rothman said in an interview in Shanghai on Monday.

"With leverage this low and with house prices rising in line with income, these are not bubbles," said Rothman. "There are obviously individual segments of the market which have problems. But in terms of systematic problems, I don't see it."

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Jim Chanos, the hedge-fund manager who was one of the first investors to foresee the 2001 collapse of Enron Corp, reiterated last month China is headed for problems because of a reliance on property development for economic growth.

Property prices in larger cities are likely to slump by half or more in the next five years, Andy Xie, a former senior economist from Morgan Stanley, said in a commentary in September.

Home prices in the nation's 70 cities rose for an 18th month in November, according to the statistics bureau, after measures including limiting the number of house purchases and suspensions of mortgage loans for third homes failed to curb price gains.

Housing prices in Chong-qing in the west of the country rose 29 percent in 2010 while those in Shanghai climbed 26 percent, according to Soufun Holdings Ltd.

Larger cities, where housing price gains are excessive, account for about 5 percent of China's new-home sales transactions, said Rothman, referring to Beijing, Shanghai, Guangzhou and Shenzhen.

Property prices nationwide have risen by an average 10 percent per annum over the past six years, compared with an average 13 percent increase in household incomes, he said.

"That's really a pretty healthy balance and people tend too much to focus on first-tier cities," said Rothman. "When people talk about bubbles, they are not looking at details. They are just looking at headlines."

He expects household incomes to increase by 10 percent in 2011, while the economy grows at a rate of 9.5 percent.

Chongqing, a municipality in western China, may impose a luxury property tax in the first quarter and Shanghai may introduce a tax on new homes around the same time, the official Xinhua News Agency and Shanghai Securities News reported on Monday.

The property-tax plan will have a limited effect on transactions as it's expected to hurt speculators more than home buyers, according to Shenyin & Wanguo Securities Co.

The tax may be applied to houses that are larger than 200 square meters with a tax rate of between 0.5 percent and 1.5 percent, analysts led by Yin Zi wrote in a report on Monday.

"If you look at all the rumors going around, the tax rate is not that big," said Rothman. "My view is that they are not going to put in place a property tax, which adds a big new burden for the average home owner. That's part of the process of creating a normal economy in China."

China's inflation rate will probably be capped at 4.5 percent this year, a "relatively healthy" number given the nation's economic growth, said Rothman.

He also expects the central bank to raise interest rates twice in the first half of this year by a combined half a percentage point.