China's average home prices may climb 7.8 percent next year, with property investments increasing 17.1 percent, a major real estate research institute said in a report on Friday.

Fueled by a favorable monetary policy and growing transactions, the growth rate of home prices will be higher than this year, the China Index Academy said.

Sales of floor area for residential housing, excluding government-subsidized housing, will increase 5.6 percent year-on-year , a bit higher than in 2012, the report said.

The country's home prices will diverge next year, with first-tier cities expected to see moderate growth, while some second- and third-tier cities are expected to see oversupply and price drops.

An industry insider echoed this view.

"Demand in the big cities, with the home purchase restriction policy in place, is much stronger than in the third and fourth-tier cities, and that's why we see some property developers now going back to first-tier cities again after fast expansion in lower-tier cities," said Gu Yunchang, deputy head of the China Real Estate and Housing Research Association, at a recent industry event.