China's property shares dived yesterday after the central bank took further measures to cool the overheating real estate sector by adjusting the housing loan policy.

Analysts said the move may deflate some bubbles in cities where real estate prices have been soaring.

The central bank ruled late on Wednesday that commercial lenders should charge at least 5.51 per cent interest on consumer housing loans of five years or more, 20 basis points up from the previous benchmark of 5.31 per cent.

And commercial lenders in areas where property prices have hit the roof may require downpayments of 30 per cent, up from the previous 20 per cent.

The benchmark Shanghai composite index closed at 1,243.475 points, its lowest ebb since February 3. Shenzhen-based developer China Vanke Co Ltd, the nation's biggest property developer by sales, shed 6.5 per cent to end at 5.01 yuan (60 US cents) yesterday.

"This fall is a reflection of the new housing loan move because sentiment is the main reason for the changing stock price, but it will likely only last until the move's effect finally shows," said Zhang Yan, analyst at China Securities Corporation Ltd.

Referring to the policy's influence on the real estate market, the analyst said it was a signal from the government that authorities recognized the risk of property bubbles and are adopting measures to halt them.

In cities such as Shanghai and Hangzhou where housing prices have risen dramatically, lenders will require at least a 30 per cent downpayment. And this may prove effective in ending speculation because house downpayment costs will rise 50 per cent over previous levels, Zhang said.

In cities with a flat real estate market, some residents are complaining.

"The housing loan interest rate has been increased twice in such a short time while the deposit interest rate remains unchanged. It's hard for us to accept," said Chen Lei, a civil servant in Beijing.

The new move is a follow-up measure of the tightening policies of last year, said Jiang Peizheng, a real estate researcher at Ping'an Securities.

Last year, the government adopted policies to restrict land provision and loans to developers.

"Last year's measures were aimed at cooling the growth of the sector by curbing supply, and this new move is to curb demand," he said.

By the end of February, China's commercial lenders had issued mortgage loans valued at 1.65 trillion yuan (US$199 billion), accounting for 23 per cent of their middle- and long-term loans, according to People's Bank of China.

In 2004, real estate prices surged 14.4 per cent, much higher than the increase in other sectors.

The new move is aimed to help the market balance out but some developers do not think it will bring down prices.

"This is only a small increase and there is still great demand. People will not give up buying houses now that they have to pay a little bit more interest, so house prices will not fall," according to Fu Wenhui, head of a private real estate consultancy in Beijing.

But other experts have said the slew of moves can be regarded as a warning from the government, and if they do not prove effective, tougher ones may follow.