The central bank's move last week to raise mortgage lending rates and cut interest rates for excess reserve for commercial banks was a sign that it is committed to resolving potential financial risks in the property market.

Whether the move will drive down real estate prices and benefit home-owners, however, is the question.

The People's Bank reduced - by 0.99 of a percentage point - the interest rate it pays commercial banks for reserves they hold in excess of regulatory minimums.

While the central bank will save some interest costs, commercial banks will withdraw their money from the bank and therefore have more capital for lending, especially as the central bank is giving them more room to manoeuvre.

The central bank raised the interest rates of commercial lending but allowed commercial banks to decide their own rate only if they keep it above 5.51 per cent for home loans longer than five years.

The flexible policy, coupled with the central bank's move in October to expand the floating range of commercial lending interest rates, marks a further step in policy-maker's efforts to gradually make the interest rate regime more suited to a market economy.

But on the other hand, the policy has aroused concern because of its potential impact on the real estate industry.

Apart from the interest rate hike, the central bank ruled commercial banks could demand a 30 per cent minimum down payment on a home, up from 20 per cent, in cities where growth in property prices is deemed to be too fast.

The central bank's worry about the health of the property sector is obvious. This concern is well-grounded.

Last year, China's property prices rose by 14.4 per cent year-on-year. Such sizzling growth means there are potential financial risks for banks, as many bank loans have poured into property construction.

In Shanghai, State-owned and share-holding banks lent 49 per cent and 79 per cent, respectively, of their loans to real estate developers last year.

The latest statistics show that investment in property rose by 27 per cent to 120 billion yuan (US$14.5 billion) in January and February over the same period of last year.

Mortgage-lending is one of the best things commercial banks can do as they are so often plagued by colossal bad loans. By the end of October, there were 1.71 trillion yuan (US$206 billion) of individual mortgage loans. Only 0.12 per cent was non-performing.

But we should point out that the individual mortgage loan sector was launched less than a decade ago. Just because potential risks do not surface in the short-term does not mean the long-term health of the sector is sound.

The monetary move, introduced to pre-empt any uncontrollable excessive investment, is the right way to try and reduce or prevent as many financial problems as possible in the coming years.

For house buyers, the new interest initiative has put them in a dilemma.

A newly-released central bank survey of potential house buyers in 50 cities reveals that 22 per cent of them said they would buy houses in the coming quarter, 0.8 percentage points higher than in the fourth quarter of last year. The interest hike last October has not dampened consumer demand for housing.

If house prices do not go down, consumers will have to pay extra interest on their mortgage loans.

To buy or not to buy becomes a really big issue for them.

Given past experiences, real estate developers will probably make use of the rising demand to raise prices, not cut them.

A central bank spokesman has pledged that if the real estate sector does not cool down, new measures will follow and the central bank survey also shows follow-up measures may have to be taken.

The authorities have previously taken many measures, including monetary and land controls, to cool down the real estate frenzy. But house prices have not stopped rising - and have risen much faster than income growth.

Last year, the disposable income of urban residents grew by 7.7 per cent.

If houses remain expensive after the new interest rate hike, consumers will be the biggest losers.

That would be the worst result.