POTENTIAL BUYERS: Visitors look at a model of apartments at the Zhejiang Real Estate Expo held in Hangzhou, capital of Zhejiang Province, on October 21 (HUANG ZONGZHI)

"Amid the downturn of the housing market, banks are aware of the risks of home mortgage lending. The banks' interest rate increase was reasonable," said Yi Xianrong, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences (CASS).

Yi also predicted more increases in mortgage rates in the future.

Meanwhile, the Central Government pledged earlier this year to build 10 million units of government-subsidized houses for low-income families in 2011 and 36 million units in total by 2015, as the country tightens the runaway property market.

With a large number of subsidized houses available, the supply and demand situation in China's housing market will change, said Ba Susong, a researcher with the Development Research Center of the State Council.

The official data showed that nearly 3 million units of subsidized houses will be delivered by the end of this year and nearly 8 million units will be completed next year.

"Real estate developers are facing the toughest market and policy environment this year, and there are mounting pressures from inventory," said Ba.

"The housing price plunge and shrinking sales volume have increased the housing inventory. As the domestic monetary environment tightens, developers are coming under mounting financial pressures. Some small developers may run out of cash and collapse," said Nie Meisheng, Director of the China Real Estate Chamber of Commerce.

The completion of a large number of affordable houses may be the last straw that breaks the developer's back, said Ba. The real estate industry is going to reshuffle, he said.

No easing

Price drops in some large cities have aroused fresh concerns whether China will stick to its stringent control over the housing market.

Qin said that the government is not likely to ease real estate policies given the current global economic outlook.

Meanwhile, in contrast to the housing market slump in big cities, small cities still enjoy a housing buying spree.

Wang Jun, a 30-year-old migrant worker in Kunshan of Jiangsu Province, a small city near Shanghai, bought his first home less than one month after he arrived there in August, as since then there has been expectation that the purchase limit will be expanded to medium-sized and small cities like Kunshan.

"I made the decision to buy this house in two days. The market is crazy. If I didn't buy it, other people would buy it. What is more, the price has surged quickly," Wang said.

Wang was afraid that the purchase control policy might deprive him the chance to own his own house in the city. The purchase limit in some cities does not allow selling houses to residents living less than one year in the city and without a full-year social security payment.

The CIA data showed that 54 out of 100 cities saw a month-on-month increase in housing prices in September. Most of the 54 cities are second- and third-tier cities that have not implemented purchase limit policies.

In addition, housing demand for the long term will be strong, which can still prop up the housing market. According to Ha Jiming, Managing Director of Goldman Sachs Group's Investment Banking Division, several factors exist to propel the strong demand.

The housing prices in major and medium-sized cities are still bearable. The household spending on mortgage loans in major and medium-sized cities now account for 39 percent of the buyers' incomes, which is within the scope of healthy financial conditions.

China's baby boom generation is now between 40 and 60 years old, and their children are reaching the marriageable age, which will boost the demand for housing.

Real estate is considered a viable tool to fight against inflation in China. Chinese people prefer to invest in housing to support their retirement.

The strong demand from urbanization will drive up the housing market. China's urbanization rate is still low compared with developed countries, and the acceleration of urbanization will create higher demand for housing.

In the wake of the global financial crisis in 2008, China issued excessive money to prop up the economy. The excessive money has to be invested and housing is still a good choice, as seen in the soaring housing prices of the past two years.