Local governments have played an important role in pushing prices higher as they seek funding for infrastructure projects, experts said.
But it's not the only reason to explain why prices have risen so quickly in second-tier cities this year.
Experts have also pinned the price surge on a change in demand, driven largely by government policies in first-tier cities aimed at keeping housing prices under control.
"The main reason for the recovery in the second-tier cities is that these cities have absorbed the surplus demand from the first-tier cities, where local governments recently put in place a series of restrictions on housing purchase," said Shi Liang, general manager at Shanghai Zhigo Asset Management Co.
First-tier cities have gone to great lengths this year to hold down housing prices.
On March 25, the Shenzhen government implemented purchase and credit limits for its real estate market.
For example, it increased the minimum down payment requirement on second homes from 30 percent to 40 percent, according to media reports.
The government also made it a lot harder for buyers without local residency to purchase homes in the city.
On the same day, the Shanghai government announced its own policies to curb housing purchases, such as increasing the minimum down payment requirement on larger homes to as much as 70 percent.
Some media reports called these measures "the harshest ever."
Shi's view was echoed by an expert surnamed Huang, a veteran industry insider with one of China's largest real estate information providers.
"Some rigid demand for housing was diverted to the second-tier cities," Huang told the Global Times Friday.
Bubble trouble
Although there haven't been any signs that housing prices in second-tier cities will fall, experts cautioned that it is easy for a real estate bubble to form.
The problem is that there aren't many fundamental reasons for housing prices to rise as fast as they have.
The housing market in second-tier cities is more or less balanced, so there's no support for an ongoing increase in housing prices, Xiang Zheng, a doctor of economics at the Central University Of Finance and Economics, wrote in an article for stcn.com on June 21.
These cities are also not receiving the large population inflows necessary to justify building more houses. In addition, China's aging population will lead to an excess of housing, which will limit the room for price increase.
Media reports have also pointed out that soaring housing prices will cause commercial rent prices to rise, hurting local manufacturing.
So, sky-high housing prices could hurt second-tier cities if the government doesn't roll out effective measures to prevent speculation, sina.com.cn reported on Sunday.
Renewed restrictions
So far, Hefei has been the most prominent second-tier city to rein in its real estate market. On June 21, more than 20 local government departments in Hefei met to figure out how to keep housing prices in check, such as raising minimum down payment requirements for mortgages.
The government also tightened lending standards and increased the supply of land available to developers.
"By tightening credit, the Hefei government has indicated that it wants to rein in its real estate market," Yan Yuejin, an expert from E-house China R&D Institute, was quoted as saying by the China Business News on Thursday.
Yan predicted that more second-tier city governments will also follow suit, which will curb the rise of housing prices.
"The central government will adopt a differentiated approach to regulating the housing market in different parts of the country," Zhang Dawei, chief analyst at Centaline, was quoted by the China Business News on Thursday.
