However, confusion about how to apply the rules and foot-dragging by some of the banks in putting a stop to loans is preventing many policies from being implemented. 'There's a bit of a dichotomy between the government pronouncements and practices in the property market,' said the head of one Beijing-based property fund. 'They may find their way to the market or they may not.'

Beijing's ability to put a lid on bad loans while encouraging healthy development could influence whether the country has a hard or soft landing in the next year or two. China invested 773.6 billion yuan (HK$724 billion) last year in the property market, an increase of 21.9 per cent from 2001. Meanwhile, there were 130 million square metres of unoccupied housing in China, about 19 per cent of the country's commercial properties. According to the People's Bank of China (PBOC), personal mortgages last year reached 825.3 billion yuan.

Investment spending was growing at three times the rate of gross domestic product growth, with residential floor space rising by a third in the past 12 months, said UBS economist Jonathan Anderson.

Mr Anderson, who believes that China's growth will 'decelerate' but the country will not suffer a post-bubble collapse, said 40 per cent of the credit growth had been concentrated in two sectors - residential housing and cars. Two years ago, the PBOC's Monetary Policy Committee said that 80 per cent of the country's consumer loans went to housing, with only 6.2 per cent on motor loans.

The government's initial response has been to crack down on over-zealous developers.

'In order to grab the market share, commercial banks in some areas relaxed credit conditions in violation of relevant regulations, contributing to the overheating tendency of real estate investment,' the PBOC said on its website. 'Unless the above problems can be duly addressed, it will be detrimental to sustained and stable development of the real estate sector as well as to guarding against credit risk of banks and maintaining persistent financial stability.'

However, in policies in place since June, the government came up with a two-pronged attack: tighten credit for developers while increasing support for mortgages, particularly for the less wealthy.

In June, the PBOC increased mortgage rates for high-end apartments, office buildings and villas. People buying second homes were told they had to put down a larger down payment.

In August, the State Council issued a circular designed to limit the development of luxury housing, eliminate irregularities in the real estate market and control the amount of land used for luxury real estate developments. More recently, the minister of construction said the government would guarantee and promote loans used for the purchase of low-cost flats.

It sounds good in practice but is it happening in the field?

Developers say getting approval for the four key certificates - land use, land-use planning, planning for construction and construction itself - is harder than it used to be, as banks require more cash upfront and closely examine the ratio between the value of the project and the amount of the loan.

However, a rule that forbids pre-sales before completion is often flouted. For example, developers tell the bank that construction is completed when only one of several towers has been built. Meanwhile, buyers are lining up to buy flats in all four.

'There are always banks out there that will do business,' said one lending executive.

More difficult to control are mortgages. Unlike the massive loans to a single developer, mortgages are borrowed by thousands of individuals and are not easy to track. They are also a big source of growth for the banks.

'Right now, the commercial banks aren't very keen to implement policies announced by the PBOC,' said Ivan Ko, chairman of Advantage Services Holdings, which provides mortgages.

Take Shanghai. In the past two months, the city has said it will make available interest rate subsidies for apartments selling for less than 3,000 yuan per square metre, and smaller than 90 square metres.

However, that is available only in a small number of buildings in Shanghai.

'When you say affordable housing, the margin is considerably lower than for any other category of housing. Nobody wants to do it,' said Joseph Zimny of New Choice Mortgage Securities in Shanghai.

Some commentators say that Shanghai is alone in providing interest rate subsidies to low-end homeowners as there is little evidence this policy is being followed elsewhere in the country.

Meanwhile, the PBOC is having a tough time coming up with rules that apply evenly across the entire country. That is because of a tremendous variation in the income levels of urban residents and in the rate of growth of their property markets.

'How do you define high-end property? It might be a high-end property in Tianjin but not in Beijing,' said Mr Ko.

Of course, there is an argument that there are built-in levers that will slow the growth of mortgages. For example, there are no secondary institutions providing credit histories. In addition, China lacks a secondary market in mortgage trading.

Analysts say the PBOC and the State Council are moving in the right direction by trying to strike a balance between two conflicting goals. They say what is occurring in housing policy is typical of the way government works in China; state the policy and let the institutions work out the details.

'The government is still keen to encourage the healthy development of the property market as they see it as one of the important drivers of economic growth,' said Jaye Han, chief executive of a property fund.