BEIJING (By Langi Chiang and Simon Rabinovitch) - Chinese housing prices are on track to dip early next year, with tighter monetary policy and rising inventories combining to take some air out of a market that some fear could yet swell into a bubble.

The government launched a campaign late last year to brake soaring property inflation, with the top-end sector in wealthy cities especially frothy. It succeeded for a while in stabilizing prices, but there have been signs of a pick-up in recent months.

Acutely aware of public anger over costly housing, Beijing will not stand for that.

It will use higher interest rates, lending curbs and a battery of direct controls, from thwarting land speculators to levying a property tax, to deflate the real estate market.

"The first half of next year will be a hard time for the property sector," said Chen Dongqi, deputy chief of the Macroeconomic Research Institute under the National Development and Reform Commission, China's powerful economic planning agency.

Property prices will fall in the first six months of 2011, though by less than 10 percent, said Liu Shiqing and Xu Shengli, analysts at Essence Securities in Beijing.

"Under the impact of the macro policies, shares in developers face high risks in the next two quarters," they said in a note to clients.

Chinese property shares .SSE have shed nearly 6 percent this week since the central bank raised interest rates, under performing the main index's fall of about 4 percent.

OFFICIAL RESOLVE

Real estate transactions and land prices have looked like rebounding in recent weeks, inviting the government to unveil fresh steps to cool the market at a time when the battle against inflation and asset bubbles is an official priority.

Chinese Premier Wen Jiabao said on Sunday that he was not satisfied with the results of property tightening so far and voiced determination to pull housing prices back to a "reasonable" level within his term, which ends in early 2013.

"Until now, the measures have not been implemented well enough, and we will reinforce our efforts in two ways," he told a radio broadcast.

That means, Wen said, that China will build more affordable housing and implement harsher monetary measures and stricter controls over land sales to curb speculation.

Analysts also expect Beijing will start a trial programme of a long-awaited property tax in 2011 in a few key cities, including Shanghai and Chongqing, which will increase the cost of owning a residential unit.

Wen's pledge came a day after the central bank raised interest rates by 25 basis points on Christmas Day, its second time in just over two months.

Economists polled by Reuters expected a further 50 basis points of rate rises in the first half. That will increase the cost of home purchases by 5 percent, according to calculations by China Real Estate Index System, a leading private research house.

NO RELAXATION

"For most companies, liquidity conditions will get worse next year. For the residential housing segment, we will see morecompanies exit the industry as a result," said Feng Lun, chairman of Vantone Group, a leading Chinese property firm.

China has already made it harder for developers to raise funds from banks, trusts and the stock market. Issuing bonds is also more costly, and the commerce ministry has recently erected extra barriers on foreign capital flows into the sector.

All that makes developers more dependent on sales.

At the same time, about 1.2 billion square meters of residential property space now under construction will hit the market in the coming few months. That is about 45 percent more than the total sold so far this year, enough to tip the market into relative over-supply.

Developers, especially those facing a cash crunch, will opt to cut prices.

Li Shaoming, an analyst at China Jianyin Investment Securities in Beijing, estimated that listed developers had enough cash to sustain operations for 10 months if transaction volume stopped growing. If it slowed, their financial cushion would deteriorate quickly, he added.

Some firms have already kicked off promotional campaigns to boost sales.

"I'm receiving a growing number of new home ads sent to my mobile phone. Some offer a discount or part of the space like the balcony for free," Zhang Yafen, a women in her 40s.

"But they are still unpardonable," she sighed. At current prices, she and her husband would need to save their full salaries for about 15 years just to make the down payment -- at least 1 million yuan -- on a three-bedroom unit in Beijing.

China is building more affordable housing for the country's ultra-poor. The target next year is 10 million units, up from this year's plan of 5.8 million. The country has completed 3.7 million units in 2010 so far, Premier Went said.

"The issue now is how can we make the sector develop in a sustainable and healthy way," said He Qi, deputy secretary-general of the China Property Association.

(Additional reporting by Xiaoyi Shao; Editing by Tomasz Janowski)