DROPPING: A billboard for price discounts for a property project is on display in Hangzhou, capital of east China's Zhejiang Province, on March 16 (WANG DINGCHANG)

Pan Shiyi, a real estate tycoon, said at the China Entrepreneurs Forum held in Beijing on May 23 that China's residential housing market would hit the iceberg very soon.

"After the collision, risks in the property market will result in more serious risks in the financial sector," Pan said.

Pan may be exaggerating, but risks in the housing market are real.

Following a strong performance in 2013, China's real estate market has shown signs of cooling down. Prices have been dropping, sales have slowed, new construction has dropped off sharply and banks have become increasingly cautious about lending to developers and home buyers.

In Beijing, the barometer of China's overall property market, home sales declined by almost half to a nine-year low in the first half of 2014. There were 22,782 new homes sold in Beijing in the first six months (as of June 26), a slump of 48.7 percent over the same period last year, according to data from property agency Centaline Group.

In May, 35 out of a statistical pool of 70 major cities saw month-on-month drops in new home prices. Only 15 cities saw month-on-month increases, according to data from the National Bureau of Statistics (NBS).

Average prices in the country's 100 biggest cities fell 0.5 percent in June from May, the second consecutive monthly drop this year, according to the China Index Academy Ltd., a Beijing-based research institute wholly owned by SouFun Holdings Ltd. In May, average prices edged down 0.32 percent from April.

In the first five months of 2014, real estate investment, which affects more than 40 other sectors from cement to furniture, rose 14.7 percent year on year, down from the 16.4 percent in the first four months and 20.6 percent in the same period of last year. Newly started property construction fell 18.6 percent year on year, the fourth consecutive period of decline. Property sales dropped 7.8 percent year on year in terms of floor space and fell 8.5 percent in terms of value, according to data from the NBS.

"The risk of a more persistent and sharper downturn in the property sector is now the biggest threat facing China's economy in 2014 and 2015," Wang Tao, an economist at UBS Bank, said in a research note.

Analysts say that the real estate sector, which accounts for more than 15 percent of China's GDP, could determine the severity of the economic downturn.

However, evidence of a housing market crash remains thin, partly owing to the ongoing urbanization drive and faster-than-ever wage increase. Analysts think this round of real estate market adjustment may signal a change in growth drivers for the world's second largest economy.

Local bailout

Several factors have contributed to the recent price fall.

"High inventories in some cities and promotions recently undertaken by some developers, together with unclear market expectations that kept buyers staying on the sidelines, have led to prices falling," said Liu Jianwei, a senior statistician at the NBS.

NBS data showed China had 352.8 million square meters of unsold homes at the end of May, over three times last year's average monthly sales.