Sluggish home sales, rising supply and declining prices epitomize China's cooling real estate market, and there are concerns that the decline may be exacerbated by commercial banks' growing reluctance to provide loans for mortgages.

According to a report by Bank of America Merrill Lynch Global Research, a further real estate slowdown is inevitable, and will result in a growing number of small developers encountering financial troubles.

Zhang Xu, an analyst with Homelink's market research department, said that traditionally March and April are the recovery periods for the property market. However, this year, the volume of second-hand house sales failed to rise in April, and fell by 10 percent year-on-year.

"The main reason that a large number of people have adopted a 'wait-and-see' attitude lies in tight credit conditions and a surge in the supply of subsidized housing," Zhang said.

According to the official micro blog of the People's Bank of China, the central bank held a meeting with the directors of 16 commercial banks on May 12, and urged them to accelerate the approval and issuance of loans to eligible homebuyers, mainly those buying their first home. However, the response to the central bank's call has been inconsistent from city to city.

Hu Jinghui, vice-president of Bacic & 5i5j, told Xinhua News Agency that an increase in the supply of government-subsidized housing for those on low incomes has soaked up some of the demand and dented the market.

Meanwhile, in a research note, Zhu Zhongyi, vice-president of the China Real Estate Industry Association, wrote that the slowdown in lending for mortgages and property development has exacerbated the general deceleration of the real estate market.

Sales of residential properties slumped 7.7 percent during the first quarter of the year to 1.1 trillion yuan, and prices have been falling month on month in most of the 70 major cities surveyed by the National Bureau of Statistics.

While many experts expect the trend to continue, Chen Zhi, deputy secretary-general of the Beijing Real Estate Association, said the market should recover to "a normal condition" in July.

"The main engine of home purchases in the major cities is not wealthy people, but young people in their '30s. They would rather shoulder a heavy loan than return to their hometowns. The high prices in major cities are a result of China's unbalanced industrial structure, which results in huge numbers of people moving to the major urban centers. Without a reasonable adjustment to that, the price fluctuations will continue," he said.

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