Property prices in 70 cities in China rose 3.1% year-on-year in March, the strongest growth since September 2011. The sharp increase could point to more policy tightening by the central government, potentially during the second quarter, according to a research report by Nomura International.

The Japanese bank says that the potential tightening of the property sector could lead to slower property investment and GDP growth slowdown during the second quarter.

Among the 70 cities where housing prices are being tracked, 68 cities saw a month-on-month increase in prices in March. That compares with 66 cities with price increases in February. The pace of year-on-year increase is also significantly higher, with March's 3.1% compared with 1.7% increase saw in February.

Month-on-month price increase were 1.0% in both February and March, implying an annualized growth of 12.7%. That is way faster than the 9.3% growth of urban household income recorded in the first quarter this year, according to Nomura's report.

We believe the sharp rise in property prices suggests that central government will push for policy tightening in this sector in Q2, and property investment growth faces downside pressures in the coming quarter, which will likely contribute to the GDP growth slowdown

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