The investors helped create a false prosperity in the real estate market. However, the "prosperity" was very fragile and resulted in sharp declines once the expected rise in real estate prices failed to happen, experts says.

"Investing and speculating in the real estate market was rampant in 2007 leading to a serious imbalance in supply and demand," says Chen Changying, president of Hopson Development Holdings Limited.

Statistics showed that housing prices in 70 large- and medium-sized Chinese cities rose by 7.6 percent in 2007, with some cities even seeing a jump of 40-50 percent.

However, "because the government implemented a series of macro control policies, the speculative activities were reined in," Chen says.

Experts say the internal restructuring of the market will continue.

"The current situation is a combined result of many factors," says Ren Xingzhou, director of the Market Research Institute of the State Council Development Research Center.

"The steady rise in housing prices has surpassed what home buyers can pay. The current drops in the growth margin of housing prices are the inevitable adjustment of the market." Ren says.

(China Daily August 4, 2008)