Real estate bubbles are increasing in size across China, putting the health of the economy at stake, warned the Chinese Academy of Social Sciences (CASS), which released the 2011 Greenbook on Housing Market on December 8.

Housing prices in 35 large and medium-sized cities are 29.5 percent overvalued on average, with Fuzhou, capital city of southeast China's Fujian Province, topping the list. The woes in Beijing and Shanghai are no less acute, with their houses overpriced 49.6 percent and 36.5 percent, respectively, said the CASS.

In an attempt to let air out of the bubbles, policymakers are making every effort to limit speculation. In its latest move, the government on November 3 ordered to raise the mortgage rate of public housing fund by 10 percent for second-home buyers. Looking ahead, next year will see the house prices stabilize, said the CASS.

But Ashvin Ahuja, an economist at the Asia and Pacific Department of the IMF, downplayed the risks, citing that there is no sign of a broad-based and significant over-valuation of residential property prices in China. But a number of coastal cities, most clearly in Shanghai and Shenzhen, may be in the early stages of excessive price growth, he said.

Property prices in China will continue to have a strong propensity to rise rapidly due to low real interest rates, lack of a property tax, increasing availability of mortgage financing and insufficient alternative investment options, he added.

China should raise interest rates further and impose a property tax to curb the risk of asset bubbles, he said.